Qiao Ma was scratching her head. The share price of little-known Silicon Valley software company AppLovin had kept lagging all year, even as it repeatedly smashed earnings expectations.
Ma had good reason to be anxious – she had just launched her own small-cap fund at Munro Partners and picked AppLovin as a day-one investment.
Qiao Ma portfolio manager Munro Partners. Picture: Eamon Gallagher
The company, which provides artificial intelligence solutions to help developers advertise and monetise theirs apps, was trading at just 13 times forward earnings, far below its larger software peers at 30 times.
“Goodness me, this is probably the cheapest software company I’ve ever seen,” Ma said.
The turning point came when AppLovin announced it would ditch Intel chips in favour of Nvidia’s high-performance graphics processing units to power its AI models. The news hit like a thunderclap, prompting Munro to double down on its already huge exposure to the tech sector.
“The stock started going viral,” Ma recalled.
AppLovin’s algorithm proved so powerful that it began expanding into e-commerce and drew a flood of advertiser dollars.
Ma had snagged a rare 10-bagger – industry slang for a stock that climbs tenfold. Munro exited the position at an average price of $US300, having bought in at $US30.
Ma, who was raised in the United States, now runs the $150 million Munro Global Growth Small and Mid-Cap Fund, which holds between 20 and 40 stocks mostly listed on the Nasdaq.
The strategy has shot out of the blocks, returning an average of 42.3 per cent per year since inception, far above its MSCI small-cap benchmark of 19.2 per cent.
It jumped 24 per cent over the past year alone, smashing the benchmark’s 6.6 per cent return.
The scar that won’t heal
Munro manages $6 billion across seven funds and every stock that is pitched to its investment team has one attribute in common – long-term earnings power. That means if a company’s profit trajectory can’t be mapped on a spreadsheet, it doesn’t make the cut.
Stock ideas are sourced from a 12-person investment team, and each member contributes across all portfolios. But Ma makes the final call on the small- and mid-cap strategy.
Ma acknowledges that this year has been challenging as US President Donald Trump’s escalating trade war sparked a global market sell-off, wiping out trillions of dollars in stocks.
Munro’s small and mid-cap fund wasn’t immune, dropping 5.1 per cent in March as Israeli software firm Wix and small appliances business SharkNinja weighed on its performance. Fears of weakening growth began to cloud the outlook, particularly for consumer-facing businesses.
One portfolio change still stings.
Shockwave Medical, which develops medical devices focused on treating cardiovascular disease, was a high-conviction position. It was adopted by 90 per cent of cardiovascular clinics across North America after being approved by the US Food and Drug Administration.
But a resurfaced New York Times article, which exposed an overuse of heart procedures, prompted insurers to tighten authorisations, slamming the brakes on Shockwave’s business. The real blow, though, was a lack of communication by Shockwave’s management.
“We just spoke to them before quarter-end,” Ma said. “They said nothing. Then earnings dropped – and shocked the market.”
The hunt
Munro lost confidence in management as the stock plunged 20 per cent, and Ma sold the position at around $US165, below the $US200 share price she bought at. Just six months later, pharmaceutical giant Johnson & Johnson bought Shockwave for $US335 a share. “We could have made 100 per cent. Instead, we lost 20 per cent. It really hurt,” she said.
But the damage wasn’t systemic, thanks to a stop-loss trigger, which forces Munro to re-evaluate any position if its share price falls 20 per cent. In nine years, Munro has never lost more than one percentage point on a stock.
For Ma, investing isn’t just about numbers. It’s about asking questions to find any rare outliers. A study showed that, over 100 years of US capital markets, just 50 companies were responsible for 40 per cent of the money made. “How thrilling would it be to hunt down one of those?” Ma said.
One area firing up new conviction at Munro is what they call innovative health, not healthcare in the traditional sense, but the cutting edge where technology, like AI, reshapes the system. It could be reducing crippling administrative burden, or improving patient outcomes.
That’s why Munro initiated a position in US-based pioneer in robotic surgery Intuitive Surgical. In the small-cap fund, it added payments group Waystar, a North American company automating the chaos of US medical billing.
Chipmaking giant Nvidia remains a cornerstone holding and has been a major contributor to Munro’s entire portfolio.
Earlier this year, DeepSeek’s claim of developing a high-performing AI model on a shoestring budget triggered a brutal tech sell-off, wiping $US600 billion from Nvidia’s market cap. But Munro held firm.
The team first bought in when the stock traded around $US20, then doubled down after a major earnings upgrade in mid-2023. As shares surged – rising more than 650 per cent – it trimmed its position at an average price of $US130. Even so, Nvidia remains a top holding.
Consumer hit
That is despite Washington issuing new export licensing requirements for the sale of Nvidia’s AI chips to China. It’s because Nvidia’s customers, which range from hyperscalers like Microsoft to sovereign wealth funds, are still spending aggressively, while competition is falling further behind.
“We think Nvidia is the winner in hardware and software in AI,” Ma said.
Its valuation, too, is coming back into focus. After peaking above 30 times forward earnings, Nvidia is now near 20.
Another recent exit was SharkNinja. The fund made a big profit on the stock, having picked up the shares in 2023 under $US50. It more than doubled within a year, soaring past $US100 before US tariffs hit.
While the company had already largely shifted manufacturing from China to South-East Asia, Trump’s hefty duties on the whole region are headwinds.
“We decided the short-term risk was too high,” Ma said.
Munro sold its holdings at an average price of $US90, nearly twice what it paid for.
Ma joined Munro from Cooper Investors. Before that she worked for hedge fund Jericho Capital in New York, where she mastered the art of stock picking.
Ma got the investing bug from her father, whose favourite pastime was selecting shares from the newspaper.
“We would look at stocks together, and I used to chart them on a big piece of paper on the wall,” she said. “I thought that picking stocks was a hobby.”
As the US earnings season unfolds, Ma is watching the actual numbers and how they stack up against low investor expectations.
After the recent market turmoil, the bar has dropped. Simply reaffirming guidance could be enough to spark a rally, she said.
While consumer sentiment remains weak and some companies may cautiously revise forecasts due to tariff fears, structural trends in software, semiconductors, and digital advertising remain intact. In areas like defence and security, they’re only getting stronger.
For Munro, the distinction is clear: the strength of US companies has little to do with the broader economy. What sets them apart is corporate America’s innovation, global reach, and leadership aligned with shareholders.
“If I had to bet on anyone fighting their way out, it’s these companies.”
While global investors get excited about Europe or other regions, Munro’s focus stays where the structural earnings growth is most consistent.
“We’re looking really hard, and I can tell you, the odds are that these companies are in the US,” she said.
This article was originally posted by The Australian Financial Review here.
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