Management Commentary: October 2026
Dear Investors,
Much of what occurred in the third quarter was the growing realization that macro headwinds plaguing equity markets were more persistent than anticipated. Oil prices rebounded sharply in recent months, while both short- and long-term interest rates climbed to multi-decade highs. Although major indexes experienced rotation rather than systemic collapse, market breadth remained exceptionally narrow: a small cohort of mega-caps drove headline gains while most individual stocks suffered bear market-like drawdowns[MK1.1]*. At the same time, rising public scrutiny around data center expansion and broader anxieties regarding AI's emergence have tempered some of the unbridled sentiment seen earlier in the year.
Despite the market weakness, we continued concentrating the Funds in the infrastructure companies we believe will benefit most from AI investment. As autonomous AI agents proliferate - evidenced by non-human internet traffic now surpassing human traffic - we anticipate an acceleration in demand for the core compute and memory architecture required to sustain these workloads, providing even more opportunities to take advantage of this burgeoning ecosystem.
The Jacob Internet Fund added one new position in the quarter: Rambus. This long-time industry leader in memory chip technology is poised to benefit from major trends in data center infrastructure that we believe will result in rapid increases in its growth rate for the next several years. The explosive growth of AI has created a severe bottleneck in modern data centers, where ultra-fast processors frequently sit idle waiting for data from slower traditional memory systems. To solve this, the industry is shifting toward memory pooling, a structural change that allows processors to dynamically share a centralized reservoir of memory to maximize hardware utilization. We think the market is underestimating the impact of the rollout of next-generation MRDIMM technology (a high-performance type of server memory), which will supercharge these pools, doubling data transfer speeds without requiring costly server redesigns. This architectural shift is a powerful financial catalyst for Rambus, as the dollar value of its components inside every AI server increases dramatically. Rambus should see higher average selling prices and wider margins in its increasingly important product revenue category, leading to earnings growth, which in our opinion, makes its already reasonable valuation look even more attractive.
The Jacob Discovery Fund did not add any new positions in the quarter.
The Jacob Small Cap Growth Fund also added a position in Rambus in the quarter.
Ryan Jacob
Portfolio Manager
Jacob Internet Fund
Jacob Small Cap Growth Fund
Darren Chervitz
Portfolio Manager
Jacob Discovery Fund
*Drawdowns are declines in an investment’s value from a previous peak to a subsequent low point.
Jacob Internet Fund, Small Cap Growth Fund and Discovery Fund Risk Disclosures: Mutual fund investing involves risk. Principal loss is possible. There are specific risks inherent in investing in the Internet area, particularly with respect to smaller capitalized companies and the high volatility of internet stocks. All three funds may invest in foreign securities, which involve greater volatility and political, economic and currency risks, and differences in accounting methods. These risks are greater in emerging markets. All three funds also invest in smaller companies, which involve additional risks, such as limited liquidity and greater volatility.
The Internet Fund may invest in fixed income and convertible securities. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. The market value of convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. In addition, convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality.
Investments in micro capitalization companies may involve greater risks, as these companies tend to have limited product lines, markets and financial or managerial resources. Micro cap stocks often also have a more limited trading market, such that the Adviser may not be able to sell stocks at an optimal time or price. In addition, less frequently-traded securities may be subject to more abrupt price movements than securities of larger capitalized companies.
Investing involves risk; Principal loss is possible. Please see the prospectus for the risks associated with investing in the Fund.
Click here to view the Jacob Funds prospectus.
The information provided herein represents the opinion of Jacob Mutual Funds and is not intended to be a forecast of future events, a guarantee of future results, nor investment advice.
Click here to view the holdings for the Jacob Internet Fund, as of August 31, 2026.
Click here to view the holdings for the Jacob Small Cap Growth Fund, as of August 31, 2026.
Click here to view the holdings for the Jacob Discovery Fund, as of August 31, 2026.
Please note that these fund holdings are subject to change and should not be considered a recommendation to buy or sell any security.
Earnings growth is not representative of the Fund’s future performance.
The Jacob Funds are distributed by Quasar Distributors, LLC.