By Lauren R. Rublin

Exponential technologies and falling stock prices are an ideal combination for growth investors like James Anderson and Morgan Samet. The year 2022 delivered both: The S&P 500 fell more than 19%, its worst showing since the financial crisis, and ChatGPT launched that November, setting the stage for the next technological revolution -- and an explosive bull market in stocks.

By the following spring, Anderson and Samet had teamed up to run Lingotto Innovation, to take advantage of attractive valuations in public and private companies with outsize growth potential and a relentless focus on innovation. Today they oversee about $800 million for the strategy, a unit of Lingotto, the investment management company owned by Exor.

Anderson is no stranger to Barron's readers. He was a member of the Barron's Roundtable in 2020 and 2021, and a longtime partner at Scotland's Baillie Gifford before retiring in 2022. He made his way to Lingotto, controlled by Italy's Agnelli family, via his connections with Sergio Marchionne, the late auto executive, and John Elkann, Exor's chairman and CEO. Samet, who had worked at several investment firms, including Goldman Sachs and Belfer Investments, shares Anderson's long-held conviction that just a handful of companies drive the majority of investment returns.

Despite their differences in experience and background, Anderson and Samet are mutually devoted to finding extreme winners, and holding them for an extremely long time. The pair recently spoke with Barron's about their investment philosophy, some of their favorite companies, such as Aurora Innovation, BYD, and Tempus AI, and the challenges that stand in the way of economic growth.

An edited version of the conversation follows.

Barron's: Lingotto says it aims to "constantly challenge conventional thinking " to produce exceptional long-term results. James, how are you challenging conventional thinking in your role at the firm?

James Anderson: Investors in private markets concentrate on finding extreme winners. The goal for many public-market investors is to provide slightly above-average performance in slightly more than 50% of stocks owned. I had lunch a month ago with Hendrik Bessembinder, and we agreed that these tendencies are only becoming greater. [Bessembinder, a finance professor at Arizona State University, has produced research demonstrating that just a tiny percentage of stocks are responsible for the U.S. stock market's gain since 1926.] He was even more frustrated than I am that public-market investors haven't adopted the view that outperformance is reliant on extreme winners.

Also, the time-frame issue in public markets has become ever more acute. Most professional investors are rewarded on the basis of short-term performance, not long-term results. We combine a belief in the long run with a belief in looking for extreme outperformers. To do that, you must be prepared to be patient.

It is important to me to try to pass this sort of thinking about extreme outcomes and time patience on to the next generation. Nothing would please me more than to see our young colleagues take this further.

Morgan, what is the ideal sort of investment for Lingotto's innovation strategy?

Morgan Samet: There is no ideal investment because innovation is about something that didn't exist or scale previously. You have to repeatedly think orthogonally and combine imagination with fundamental analysis.

The investor psychology that James touched on shouldn't go underappreciated. In many ways, it creates the opportunities our fund has. The way markets were structured and have evolved over time has created dislocations in valuation relative to the prospects of some of these businesses -- in particular, high-growth, innovative companies that might be earlier in their journey, or less profitable, or riskier in some ways. You need to be able to see through that.

The opportunity in innovation comes from being non-consensus. This brings me to portfolio allocation. Sometimes "non-consensus" means understanding how massive an opportunity could be. Our strategy is to allocate funds based on our perception of the size of the opportunity and our conviction level about it.

As long-term investors, how do you deal with short-term market volatility?

Anderson: We try not to think about it too much. I am focused at the moment on trying to understand what has led to the extraordinary environment we're in. Why is there so much political and economic disillusion? The biggest problem we face in generating sufficient productivity, wealth, and disposable income is that we haven't managed to get to a position where we can have major increases in energy supply.

The historian Henry Adams predicted that energy utilization needs to double every 10 years to enable economies to grow and productivity to increase. The trend is known as the Adams Curve.

Since the 1970s, and particularly as we enter the era of artificial intelligence, our need for energy has grown. Many of our problems will be resolved if we make progress on issues like energy demand, rather than focusing on the dramas of the day, such as tariffs. Fundamentally, in the West, we don't have the ability to grow our economies and provide people with more disposable income without generating inflation. That is intensely linked with the absence of progress on the energy front. The linkage is more profound than we are willing to recognize.

What other issues stand in our way?

Anderson: Our major structural issues are caused by a battle for global power -- namely, the underlying tension between America and China. We need to resolve effectively how these societies will get on with each other. Day-to-day conflicts are symbols of that tension, but the fundamental structural problem needs to be addressed.

Related, AI is a major structural change that will alter the payoffs that central banks and markets deal with day to day. We will know the scale of that transformation only in five or 10 years' time.

You have made a big bet on AI in your portfolio with stocks such as Nvidia. What are some of your other favorite names?

Samet: We are in an innovation supercycle, paired with geopolitical and macroeconomic uncertainty. That leads to chaos, which leads to opportunity. Trading bots and pod shops [multimanager hedge funds] are trading the volatility, while more traditional investors are hiding in more resilient businesses. We don't just want resilience. We want businesses that are accelerating due to a combination of factors.

AI, autonomous vehicles, and related technologies are all accelerating. We are invested in some of the infrastructure players -- Nvidia and Taiwan Semiconductor, which, for a long time, wasn't given the credit it deserves. We are also investors in ASML Holding and ServiceNow, which accelerates the implementation of AI via applications, agents, and workflows.

In autonomous vehicles, we are investors in Aurora Innovation, the leading autonomous trucking company in the U.S., and Pony.ai, a leader in autonomous vehicles and robo-taxis in China. There is no debate about whether autonomous vehicles are going to exist, and the leaders are clearer than people think.

What sort of growth trajectory do you envision for Aurora?

Samet: Autonomous vehicles have been in development since 2004. If you charted the development rate, it would currently look like a hockey stick. Zooming in, however, you would see how much progress has been happening all along.

Autonomous trucking is a harder business than cars. Trucks go faster, they carry heavy materials, there is more regulation, and companies operate across state lines. But the savings associated with autonomous trucking are massive. Being able to run a truck continuously -- that is, 24 hours a day, seven days a week -- would deliver a significant uptick in the profitability curve, in our view.

When do you expect Aurora to turn profitable?

Samet: I am less focused on profitability and more focused on whether the company has enough cash to carry out its mission and show the milestones necessary to continue raising cash. Aurora has a multiyear runway in terms of cash, a supportive investor base, and contracts, or partnerships with the three largest OEMs [original equipment makers].

Baillie Gifford was one of the largest outside holders of Tesla. James, have you also made a bet on Tesla at Lingotto?

Anderson: We have a small holding. The company's progress relative to peers is increasingly challenged and disappointing. That applies both to electric vehicles and autonomous driving.

The progress being made elsewhere, particularly in China, is startling. We own BYD, whose EVs are a dominant factor in the industry. China has moved ahead hugely not only in building EVs but an entire energy system based on renewables. The price of Lidar [range-sensing technology] is falling in China to levels a hundredth of what it was expected to be in America or Western Europe. Given the dimensions of the challenge, we believe it will be difficult for leadership to come back to the West.

Missing out on the energy revolution -- whether in renewables, battery technology, autonomous driving, or nuclear fusion -- would be a problem for America, in our opinion. We haven't yet spoken to an American car company that doesn't view inputs from China as critical.

What is ahead for BYD?

Anderson: It became obvious in the past 20 years that China was putting a huge effort into EV technology. A lot of it was driven by the deterioration in the air quality. Still, five years ago it was pretty obvious that Tesla would be the industry leader, whereas in China, there were 60 or 70 competitors.

In the past three years, two things have happened. First, the Chinese EV market has become dominant in scale, and second, BYD has emerged as the industry leader due to its battery technology. Today BYD has about 30% of the market. The company's success reflects a deep commitment to science.

What looming innovations strike you as most interesting or important?

Samet: We are going to see a massive step change in terms of better, faster, cheaper drugs and new modalities in pharma. There have been material innovations involving the use of AI for drug discovery, and we have made a number of public and private investments supporting that.

Recursion Pharmaceuticals is one example of a company taking an AI approach to drug discovery and figuring out which targets to focus on. Enveda, a private company, is taking a "natural" approach to using AI. The concept is that substances found in the natural world are more likely to be safe and effective for humans than those produced artificially. The company has a proprietary technology that enables it to scan, catalog, and fingerprint natural substances that would make it through Phase 1 testing in Food and Drug Administration trials with a materially higher success rate than average.

The pharma industry historically has been financially driven in the way it buys and sells assets. To the degree that you can statistically improve your success rate at any stage of the FDA funnel, you will be able to enhance the return-on-capital mechanism.

I'll mention one more company, Tempus AI. It is an AI diagnostics company.

Meaning what?

Samet: Tempus provides genomic sequencing. The costs are falling to the point where it may be possible to sequence people's genomes multiple times throughout their life. The company focuses on oncology, and is now connected in near real-time to more than 50% of all oncologists in the U.S. Those data are valuable to pharma and, in combination with other information, to doctors trying to find the right clinical trials and treatments for their patients.

We expect Tempus to grow substantially in future years. It is already nearing profitability, and will have a high margin structure relative to tool-development peers. The company also has a lot of optionality in terms of its distribution lock-in with doctors, the value of its data, and the nature of its sequencing data collection.

Any parting thoughts about the future of innovation, or your investment plans?

Anderson: Yes. Innovation over the past 20 or 30 years was dependent on Moore's Law, and not much else. It was fantastic for building truly powerful companies with extraordinary market caps, but they didn't change the fundamentals of our economy at the level of productivity. What we are talking about now is companies that have the ability over the next 20 years to change the growth rates, productivity, and happiness of our society.

Thank you, both.

Write to Lauren R. Rublin at lauren.rublin@barrons.com

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May 23, 2025 02:30 ET (06:30 GMT)

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