How this rocketing FTSE 250 stock is tapping into the billionaire-making AI revolution

As the AI revolution mints new billionaires, this high-flying FTSE 250 company has been making its shareholders wealthier too.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Concept of two young professional men looking at a screen in a technological data centre

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The managers of Polar Capital Technology Trust (LSE: PCT), a surging FTSE 250 investment trust, always believed that artificial intelligence (AI) would go mainstream. They just weren’t sure when.

Well, I think we can safely say that time has arrived. After all, ‘AI’ was crowned 2023’s word of the year by Collins Dictionary. And Cambridge Dictionary’s word for last year was ‘hallucinate’, which refers to an incorrect or misleading response generated by a ‘hallucinating’ AI chatbot.

With the share price up 133% over the past five years, the tech trust’s shareholders have certainly been benefitting.

Investing in the AI boom

The portfolio’s top 10 holdings read like a who’s who of AI royalty:

Source: Polar Capital

Microsoft part-owns ChatGPT maker OpenAI while TSMC manufactures many of the cutting-edge chips needed to train and run generative AI models.

As far as chipmaker Nvidia is concerned, one analyst memorably summed up the firm’s position last year: “There’s a war going on out there in AI, and Nvidia today is the only arms dealer.”

Beyond AI, the portfolio is invested across several core technology themes. These include digital advertising and commerce, software-as-a-service and 5G.

Expect volatility

Now, this trust obviously concentrates on a single sector within the stock market. This can lead to above-average volatility in its shares.

With the portfolio weighted towards technology, it also becomes more susceptible to market downturns.

For instance, in 2022, amid a bearish sentiment towards tech stocks, the shares slumped 36.8% versus the S&P 500‘s 19.4% fall.

Cutting through the hype

In theory, I like the company’s disciplined stock-picking. It says: “Our approach aims to cut through the hype which often can be found within the technology sector, and lead to unjustified valuations and elevated levels of risk.”

This approach means it avoids pre-revenue companies listed on the stock market. And it therefore differs from Scottish Mortgage Investment Trust, its larger peer, which has backed a handful of early-stage companies.

Underperformance issues

Unfortunately, and perhaps somewhat surprisingly, the trust has actually underperformed its benchmark (the Dow Jones Global Technology Index) over three, five and 10-year periods.

Source: Polar Capital

The reason for this seems to be that the trust has long been underweight on giant tech stocks.

For instance, at the end of its last fiscal year in April, its three largest holdings were Apple, Microsoft and Alphabet. These made up 27% of net assets in contrast to a 41.9% weighting in the benchmark index.

Therefore, the better the mega-cap stocks have done, the more difficult it has been to outperform.

Given this structural weighting issue, I’m not looking to invest myself.

New billionaires are being made

Returning to the billionaire-making AI revolution the trust is tapping into, I found these stats mind-blowing:

  • Nvidia added $277bn to its stock market value on 22 February.
  • This was the largest gain ever on a single day on Wall Street.
  • Jensen Huang, CEO of Nvidia, saw his wealth soar by $9.6bn in one day, placing him 21st on the Bloomberg Billionaires Index.

Meanwhile Lisa Su, CEO of Advanced Micro Devices, recently became a paper billionaire after her company’s stock doubled in one year. Incredible!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Ben McPoland has positions in Alphabet, Apple, Nvidia, and Scottish Mortgage Investment Trust Plc, and Taiwan Semiconductor Manufacturing. The Motley Fool UK has recommended Alphabet, Apple, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

British Pennies on a Pound Note
Investing Articles

1 penny stock I’d buy today while it is 99p

Ben McPoland highlights Windward (AIM:WNWD), a fast-growing penny stock that could benefit from the artificial intelligence revolution.

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

This forgotten FTSE 100 gem could be the best bargain on the stock market

The FTSE 100 is full to the brim of high-quality businesses. But this Fool has his eye on this 'forgotten'…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Here’s a FTSE 250 stock I’d put 100% of my money into

If this Fool could buy just one stock from the FTSE 250, Games Workshop would be his choice. Here, he…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

2 reasons Warren Buffett might love this stock, and 1 reason he might avoid it like the plague

Warren Buffett's one of the best stock pickers of all time. But would he approve of Barclays shares? This Fool…

Read more »

Union Jack flag triangular bunting hanging in a street
Investing Articles

Down 28% in a week! What’s going on with the share price of this FTSE 250 British icon?

There’s one stock in the FTSE 250 that took a bit of a battering last week. But I’m not surprised,…

Read more »

Two white male workmen working on site at an oil rig
Investing Articles

At around £28.50, Shell’s share price looks cheap to me

Shell’s share price still looks undervalued against its fossil-fuel-focused rivals to me, despite it pushing back its carbon reduction targets.

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

433 shares in this FTSE 100 dividend superstar could make me £18,803 in annual passive income!

This overlooked FTSE 100 gem has one of the best yields in the index, looks undervalued, and makes me big…

Read more »

Investing Articles

2 under-the-radar investment trusts I’d buy for a new Stocks and Shares ISA

Here are two fantastic trusts that I'd happily snap up today if I were building a Stocks and Shares ISA…

Read more »