My Scottish Mortgage (LSE: SMT) shares had a jolly good January. I didn’t expect that, given the furore over Chinese artificial intelligence (AI) upstart DeepSeek.
Scottish Mortgage Investment Trust’s heavily invested in big US tech, with Amazon (6.3%), Meta Platforms (4.6%) and Nvidia (4.1%) among its top holdings. Yet the sector’s been all over the place this week, as investors struggle to get their heads around DeepSeek.
It triggered a $1trn US stock market crash on Monday (27 January), with Nvidia at the heart of it. Its market-cap crashed by almost $600bn, the largest one-day loss in US stock market history.
Some see DeepSeek as a bullet aimed at the heart of AI’s hype. Others claim by making it cheaper – and more energy efficient – it will boost demand. We just don’t know right now.
Can we still trust in US tech?
Yet the Scottish Mortgage share price is up almost 15% this month, continuing its recent surge. It’s up 37% over one year and 85% over five. The chaos of 2022, when the Baillie Gifford-managed fund crashed by half during a tech rout, is all but forgotten.
This doesn’t make Scottish Mortgage a no-brainer buy. While it’s an exciting way to access disruptive tech, including Elon Musk’s unlisted SpaceX (7.5% of assets), it’s obviously a volatile sector. Today even more so.
Scottish Mortgage lead manager Tom Slater now has one big feather in his cap. On 8 November he trimmed his stake in Nvidia, presciently warning that “the primary challenge hindering large-scale AI adoption remains the high cost”.
Slater highlighted the “skyrocketing costs of training AI”, which he said “raises concerns about the sustainability of current capital equipment spending, including Nvidia chips”. Spot on.
Scottish Mortgage is now the only actively managed investment fund I hold. I prefer to pick my own stocks or leave events to a tracker. But insights like that are worth paying for. Especially since the trust’s annual management charge is a lowly 0.3% a year.
There’s more to tech than Nvidia
Scottish Mortgage isn’t just about Nvidia. Many are excited about SpaceX, particularly the possibility of Musk floating its Starlink satellite operation. It’s been valued at around $350bn.
Another unlisted holding, data analytics platform Databricks, is also eyeing an IPO. Its valuation could top $60bn. It remains to be seen whether these valuations will be dented by DeepSeek or some other disruptive cut-price Chinese tech we don’t know about yet.
I was surprised to see Scottish Mortgage still trades at an 11.7% discount to net asset value despite its strong run. Investment trust discounts and premiums should be treated with caution though. There’s no guarantee that discount will narrow.
I was on the brink of selling my stake last autumn and shoving the money into an S&P 500 tracker. I feared Scottish Mortgage brought an extra layer of risk. But I think Slater’s proven himself since the departure of driving force James Anderson. Since I’m personally up 50% in 18 months, it seems rude to bail out now. I’m also curious about those big IPOs.
For any investor considering the stock, I’d say be my guest, but think long term. Anyone who’s already big on US tech should tread carefully. Especially today.
