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AI chipmaker Nvidia just became the world’s largest company, with a market cap of over $3.3trn. Scottish Mortgage Investment Trust (LSE: SMT) holds Nvidia shares.
In fact, after this year’s surge, it’s become the trust’s biggest holding.
ASML is one of its holdings too, and it develops the techie tools that AI chipmakers use.
Musk on board
Tesla has been in the news after shareholders voted in favour of Elon Musk’s bumper new pay deal. That’s to keep him on board, and he’ll pursue his AI and robotics ambitions within the company. The trust holds Tesla.
Oh, and it has some Tempus AI, which has just hit the market with an IPO. That’s not off to the best start, but we can’t have everything.
AI theme
I’m seeing a bit of a theme here. It looks like Scottish Mortgage could be a good pick for investors who want a slice of the AI action to consider.
But at a discount, and with a bit of safety thrown in by way of diversification.
Scottish Mortgage shares are up 10% so far in 2024. But that’s well short of the 19% that the Nasdaq tech stock index has achieved.
And the trust’s price is way down from its 2021 peaks, with a five-year gain of 67%. The Nasdaq has climbed 122% in five years.
Discounted stock
Scottish Mortgage isn’t 100% invested in Nasdaq stocks, mind. But its shares still trade on a discount of 10%. That means we can buy the shares today for just 90% of the value of the assets they represent.
It’s been better, and in recent years I’ve seen the discount as high as 20%. But a discount is still a discount, and I’m not going to be too picky.
There’s one big thing I don’t like about Scottish Mortgage shares, their volatility. They’ve soared ahead of the Nasdaq, and they’ve crashed harder.
Volatile? Yep
And when a share price can swing more wildly than that index, it can be enough to keep us awake at night.
Next time there’s a Nasdaq correction (and I’m convinced there will be), might the trust’s shares fall further? I think they probably will.
But over the next 20 years and more, do I expect both the Nasdaq and Scottish Mortgage to produce winning returns. Again, I’d say probably.
Go in big?
I’d never see Scottish Mortgage as a ‘bet the farm’ investment. It does give us some diversification, which I rate as essential. It holds Moderna, Amazon.com, Kering…
That’s only diversification among growth stocks though. Some of its holdings are more widely global, but there’s a heavy Nasdaq focus. And that alone means risk.
Still, I really do think an investor keen on getting into AI could do well to think about adding Scottish Mortgage to their otherwise diversified portolio.
I should buy some. Oh, hang on, I already did. I might get some more.
