MW This five-star fund manager says even smart investors have been missing the greatest theme of our time

By Barbara Kollmeyer

Alger's Patrick Kelly says wake up now because AI is bringing huge change

The news these days is distracting even for Wall Street's best, like Alger Funds' star stock picker and portfolio manager Patrick Kelly, who kept watch on Iran-Israel headlines while sharing secrets of the five-star Morningstar-rated Alger Focus Equity Fund's ALAFX success.

"We live in obviously a dangerous world," and protecting clients from that is tough, Kelly told MarketWatch in an interview on Monday. "Through everything that's occurred over the past several years and everything that's occurred over the past year to date, I think it has served us well to focus on companies that are executing."

One could say that strategy has worked, given the $2.5 billion fund he co-manages has stayed in the top 5th percentile since its 2012 launch. Kelly also heads Alger's Capital Appreciation and Spectra Strategies and co-manages other funds.

Alger Focus targets companies "well-positioned to benefit from all the change and innovation that's going on right now," as the pace of both speeds up and creates winners and losers across sectors, he said.

Kelly and his team are unearthing those in big picture themes such as cloud-computing and of course AI, what they think "will be one of the biggest technological advancements in history."

"We think AI adoption is at an inflection point, and I think that's occurring on the consumer side," where the technology is being used more on a daily basis by individuals now than even nine months ago, he said. The world is also in the early stages of the autonomous agentic AI that doesn't require commands to make decisions, he added.

"And then on top of that, I don't think we've really even entered or maybe we're just entering the first inning of physical AI and autonomous vehicles, autonomous robots, humanoids. And that will be a whole another phase," Kelly said.

The manager, who joined Alger just ahead of the dot-com bust in 1999, said the lines between companies and sectors are blurring, "as every company has to be a technology company to a certain extent."

The fund's big bets across the top of its portfolio are Nvidia $(NVDA)$ at No. 1, followed by Microsoft $(MSFT)$, Meta Platforms $(META)$ and Amazon $(AMZN)$.

Kelly turns to another set of stocks that he's "very positive," on right now - independent power producers such as Talen Energy $(TLN)$, NRG Energy $(NRG)$ and Vistra (VST).

"We had never really invested in utilities over the past 20 years because demand was stagnant, but with the electrification of the economy and the rise of AI, all the power that AI requires, that is leading to higher growth rates and stronger demand for power and we think the future demand will be very strong," he said.

So-called hyperscalers - like Meta did earlier in June -are signing 10 and 20 year agreements with power companies "at prices well above market prices," he said. And those lengthy deals mean "earnings acceleration and multiple expansion" for the power companies.

Tesla $(TSLA)$ is also in his portfolio, though an equal-weight and not in the top ten. Kelly is cautious on the EV maker's traditional auto business, but "bullish on the massive opportunity they have on autonomous vehicles and autonomous robots."

"We think autonomous robots will be the biggest market ever and will probably dwarf the size of the handset market," and Tesla is well position for that "huge market opportunity," he said.

Apple $(AAPL)$, another of their positions is also "well positioned to benefit from AI because they have that large active user base, but they have been slow to innovate around AI," he said. "I think it's going to be important to monitor and evaluate how Apple innovates from here. That will be very important."

Kelly cautious investors against underestimating potential AI improvement in the years to come.

"I think there's been a lot of macro noise over the past several years and some really smart investors have been pretty cautious on the markets," he said. "People have kind of missed these bigger picture trends such as AI and its impact on a number of different companies. And it's been a great several years."

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are dropping on fears of an escalating Middle East conflict. Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y are lower, oil (CL00) (BRN00) is climbing and the dollar DXY is firmer.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              6033.11    0.45%   1.17%   2.58%   10.23% 
   Nasdaq Composite                                                     19,701.21  0.56%   2.53%   2.02%   10.33% 
   10-year Treasury                                                     4.443      -3.70   -4.80   -13.30  21.60 
   Gold                                                                 3411.6     1.94%   5.55%   29.26%  46.19% 
   Oil                                                                  72.29      10.57%  16.32%  0.58%   -9.57% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

President Donald Trump is urging Iran to reach out to him. Heavy traffic jams have been reported in Tehran after he warned the city to "evacuate," before leaving a Group of Seven meeting early as the conflict with Israel reaches day five.

Economists expect retail sales to fall in data set for release on Tuesday, as import prices, industrial production and home-builder confidence reports are also are due for release. A two-day Fed meeting kicks off Tuesday.

Eli Lilly $(LLY)$ is reportedly nearing a deal to buy biotech Verve Therapeutics (VERV), whose shares are up 80%.

Solar stocks including SunRun $(RUN)$are lower after the Senate unveiled its version of the budget bill that would phase out wind and solar tax credits by 2028.

Shares of BGSF $(BGSF)$ are surging over 60% after the staffing company said it's selling the professional unit of its business for $99 million and its CEO is stepping down.

Tensions between OpenAI and Microsoft $(MSFT.UK)$ over the future of their AI partnership have reportedly reached "boiling point," according to Wall Street Journal report.

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The chart

Citigroup analysts are calling a gold top, as they see physical demand from banks and households, a key driver of prices according to their chart, at a peak. Waning demand may stem from "modest improvement in global growth confidence," as the U.S. budget passes and Trump's trade and economic policies become less bearish, said the analysts.

Top tickers

These were the most active tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   GME     GameStop 
   PLTR    Palantir Technologies 
   AMD     Advanced Micro Devices 
   AAPL    Apple 
   RGC     Regencell Bioscience 
   AMZN    Amazon 
   TSM     Taiwan Semiconductor Manufacturing 
   MLGO    MicroAlgo 

Random reads

When an alligator walks up to your hotel.

A 110-year-old lobster has been returned to the sea (still alive) by a New York restaurant.

Also in New York - a competition for top pigeon.

-Barbara Kollmeyer

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June 17, 2025 06:50 ET (10:50 GMT)

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