Artificial intelligence (AI) has been in development for decades. The term was coined at a summer research conference at Dartmouth College in the US as far back as 1956. But after ChatGPT’s spectacular recent rise, many AI shares have surged in value this year. One FTSE 100 stock hasn’t participated in this rally though, despite investing in dozens of companies harnessing AI.
A basket AI approach
Scottish Mortgage Investment Trust (LSE: SMT) seems to have been forgotten in the big AI rally of 2023. Indeed, the shares of the global tech-focused trust are only up 4% since the turn of the year. Other stocks associated with AI are up much more than that.
I believe this gives me the chance to gain significant exposure to this trend without taking on the risk of overpaying for individual stocks.
| AI-related stock | Year-to-date share price performance |
| Tesla | +93% |
| Nvidia | +60% |
| Cloudflare | +59% |
| Snowflake | +26% |
Tesla’s ambitions for full-self driving vehicles and robots rest on AI. The company places such importance on the technology that it has its own dedicated AI Day. This is its annual showcase of the latest tech of that type being used across the company’s various business units.
The electric vehicle pioneer remains a large position in Scottish Mortgage’s portfolio, and was 3.2% of assets at the end of December. Tesla stock is up 93% in 2023, so unless the trust has been offloading some shares in recent weeks, it’s likely to be an even larger part of the portfolio today.
Discounted
Another large holding is chip maker Nvidia. CEO Jensen Huang recently called ChatGPT an “iPhone moment” for AI. The company is at the forefront of advanced computer technology and offers an advanced, market-leading suite of AI hardware and software.
Cloudflare is a company that speeds up and provides security for web applications routed through its intelligent global network. It has the opportunity to be the content delivery network and security vendor of choice for AI platforms.
Meanwhile, Scottish Mortgage holding Snowflake is a cloud-based data warehouse. It designed its platform from the ground up to support machine learning and AI-driven data science applications. Warren Buffett’s Berkshire Hathaway has invested in Snowflake too.
Yet despite AI-related shares surging, Scottish Mortgage stock is only up in low single digits. The trust’s discount to its net asset value (NAV) now stands at over 14%. That suggests the stock is undervalued and could prove to be a long-term bargain at today’s price. But there’s a big caveat.
Private holdings
Some 30% of the trust’s holdings are in unlisted stocks. While offering exciting long-term growth potential, they do present additional risk because they’re not valued as often as publicly-traded stocks.
For example, it has around £300m invested in ByteDance, the Chinese private company that owns TikTok. All of Bytedance’s content platforms are powered by AI. However, TikTok could be banned in the US on national security grounds. Were that to happen, the trust’s investment would likely be worth far less than £300m. But it could take weeks to find out exactly how much less.
Despite this risk, I’m intending to buy more Scottish mortgage stock. I view it as a core long-term holding in my portfolio to gain exposure to AI and other world-transforming trends.
