February Changes

There were no changes to the portfolios in February following our last update.
However, in March, we made a slight addition to our position in Broadcom (AVGO).

February Market Performance

The market experienced turbulence in mid-February due to signs of economic weakness. Recent data has been softer than expected, and the Citi Economic Surprise Index has turned firmly negative. Some of this decline may be attributed to seasonality and adverse weather, but it remains a trend worth monitoring. Given the U.S. economy’s reliance on consumer spending, we believe the labor market holds the key, and upcoming jobs reports will provide critical signals for the market’s direction.

The S&P 500 declined 1.3% last month, and as of this writing, it has turned negative for the year. Defensive sectors led the market, with Consumer Staples, Real Estate, Utilities, and Health Care outperforming. The biggest laggard was Consumer Discretionary, which fell 9.4%, weighed down by Tesla (-27.6%) and Amazon (-10.7%), which together represent 55% of the sector.

Portfolio Highlights and Laggards

Our decision not to own Tesla was the largest contributor to relative outperformance in February. Additionally, T-Mobile, DTE Energy, and NiSource all delivered double-digit gains, contributing positively to portfolio performance. On the downside, Marvell Technology, UnitedHealth, and Amazon were the biggest detractors.

Security Specific Comments:

Following the end of the month, Marvell reported earnings, and despite beating expectations on sales and earnings while issuing in-line guidance for Q1, the stock dropped sharply.

One major concern revolves around Marvell’s custom chip business with Amazon (AWS). Marvell has existing partnerships with Google (CPU only), AWS, and Microsoft for custom silicon programs. AWS’s Trainium 2 is currently ramping up at Marvell, with Trainium 3 expected to follow later this year, contributing meaningfully to sales in 2026. However, Alchip, a competitor, claims to have won this business, leading to uncertainty about Marvell’s role. Analysts are split on whether Marvell retained the next-generation Trainium contract or lost it. On the company’s Q4 earnings call (March 5), management expressed optimism that Amazon’s custom silicon sales are expected to grow through 2025, 2026, and beyond.

Outside of AWS, Marvell’s Google business is strong, Microsoft’s ASIC remains on track for 2026, and the company also won a networking chip contract with Meta. Additionally, management remains confident in reaching $15 billion in data center revenue by 2028.

Aside from the AWS uncertainty, Marvell was also a widely held favorite among active managers. There was an expectation the company would beat in Q4 and raise guidance for Q1. While Marvell met expectations, it failed to exceed them, leading to an underwhelming outcome for investors.

Our View: At its current valuation, we believe Marvell remains attractive and plan to hold our position, though we may realize losses in taxable accounts. The $15 billion data center opportunity is substantial, especially relative to the $1.8 billion AI contributed in 2024 and the company’s total $5.7 billion revenue last year. Additionally, Marvell has an investor day in June, which we believe could be a positive catalyst for the stock.

UnitedHealth shares fell after The Wall Street Journal reported that the Department of Justice has launched an investigation into its Medicare Advantage (MA) business. The report suggests the company may have overstated diagnoses for MA policyholders, a tactic that could lead to higher reimbursements and regulatory penalties.

UnitedHealth has denied any wrongdoing and stated it is unaware of any new investigation. The Centers for Medicare & Medicaid Services already conducts annual audits on coding practices, and the codes in question have been removed from the current regulatory framework. Historically, cases like these have been backward-looking, and penalties have remained below $1 billion.

Despite this, UnitedHealth lost $33 billion in market cap on the news, a reaction we believe is excessive. While the company, as the largest MA provider, could face higher penalties than previous cases, we do not see this as a material threat to its long-term fundamentals. For now, we plan to continue holding our position in UNH.

Disclosures

The views expressed represent the opinions of Lincoln Capital Corporation as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website.

Past performance is not a guarantee of future results. Please note that due to rounding differences, certain data presented may not sum to 100%.

The investments presented are examples of the securities held, bought and/or sold in Lincoln Capital Corporation strategies during the last 12 months. These investments may not be representative of the current or future investments of those strategies. You should not assume that investments in the securities identified in this presentation were or will be profitable. We will furnish, upon your request, a list of all securities purchased, sold or held in the strategies during the 12 months preceding the date of this presentation. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of securities identified in this presentation. Lincoln Capital Corporation or one or more of its officers or employees, may have a position in the securities presented, and may purchase or sell such securities from time to time.