Fred Alger Management, an investment management company, recently released its fourth-quarter 2025 investor letter for the Alger Small Cap Focus Fund. The letter highlighted the strong performance of the US equity market, with the S&P surging 2.7% in the quarter. This growth was driven by better-than-expected corporate earnings, the Federal Reserve’s interest rate easing stance, and a resilient macroeconomic backdrop. The quarter also saw increasing divergence below the index level surface, with doubts emerging around AI investment due to various challenges.
Despite these challenges, Fred Alger Management remains optimistic about small-cap stocks and identified Nebius Group N.V. (NASDAQ:NBIS) as a standout performer in the quarter. Nebius Group N.V. is a technology company based in Amsterdam, Netherlands, specializing in AI-focused cloud infrastructure. The company operates GPU compute capacity across Europe and is expanding in the US, positioning itself as a “neocloud” beneficiary of accelerating AI adoption.
In the fourth quarter of 2025, Nebius Group N.V. saw its shares detract amid a broader selloff in AI infrastructure-related equities. However, the company continues to sign large, long-term agreements with tier-one customers, including major cloud service providers. This has improved revenue visibility as new capacity comes online, despite the near-term volatility in the market.
Nebius Group N.V. is not among the 30 most popular stocks among hedge funds, but it has seen increased interest from investors, with 65 hedge fund portfolios holding the stock at the end of the third quarter. While the company shows promise as an investment, Fred Alger Management believes that other AI stocks may offer greater upside potential with less downside risk.
For investors interested in AI stocks, it is recommended to explore the list of AI stocks making waves on Wall Street and review hedge fund investor letters from the fourth quarter of 2025 for additional insights. Overall, Nebius Group N.V. presents an intriguing opportunity in the AI sector, with its focus on cloud infrastructure and long-term agreements with key players in the industry.
In conclusion, Fred Alger Management’s Alger Small Cap Focus Fund remains optimistic about the potential of small-cap stocks in the current market environment. Nebius Group N.V. stands out as a promising player in the AI space, despite facing challenges in the broader market. Investors looking for exposure to the AI sector should consider the unique value proposition offered by Nebius Group N.V. and conduct further research to determine its suitability for their investment portfolio.
