Nvidia is up 178% in 2023! So when will Scottish Mortgage shares rise too?

Many of the AI-related stocks in Scottish Mortgage’s portfolio have surged this year. Yet the trust’s shares continue to go nowhere.

| 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.

artificial intelligence investing algorithms

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.

Scottish Mortgage (LSE:SMT) shares have fallen 11.5% in 2023 and remain in the doldrums. This performance is in stark contrast to some of the trust‘s top holdings, particularly Nvidia (NASDAQ:NVDA), whose stock has nearly tripled since the turn of the year.

So this begs the question: when could Scottish Mortgage shares also start rising?

An AI portfolio

First, it’s worth highlighting just how long Scottish Mortgage has held certain companies that are enabling the rise of artificial intelligence (AI) today.

First InvestedDescription
ASML 1996The company’s equipment is at the heart of the semiconductor industry.  
Amazon2003Much AI computing is done via Amazon Web Services.
Tesla 2013Pioneering real-world autonomous driving software.
Nvidia2016Around 90% of generative AI programmes are trained using Nvidia’s chips.

The managers recently quoted a Morgan Stanley analyst, who said in 2018 that “all roads lead back to Nvidia the most direct beneficiary” of AI.

They’ve also speculated that we could be at the start of another AI-driven computing revolution, similar in magnitude to the personal computer or smartphone. And while nothing is guaranteed to continue, Nvidia is currently positioned at the centre of it.

Hindsight and foresight

Scottish Mortgage currently owns around 100 stocks, with its top 10 holdings accounting for some 45% of total assets.

In contrast, fund manager Nick Train’s Finsbury Growth and Income Trust has 84% in its top 10 holdings. And Apple represents around 44% of Berkshire Hathaway‘s overall equity portfolio.

Now, the universe of stocks available to Scottish Mortgage is admittedly larger with access to private companies. But still, as a shareholder, I’d like to see the trust have even more conviction in its best ideas.

For instance, if all roads in AI seem to lead to Nvidia, as the managers have said, then why is it only around 4% of assets?

Surprisingly, part of the answer may be that the trust actually significantly reduced its Nvidia holding during FY2023 (year ending 31 March).

Source: Scottish Mortgage FY2023 annual report

I imagine this reduction was done before ChatGPT took the world by storm. Obviously hindsight is a wonderful thing! Still, at least it had the foresight to identify Nvidia in the first place.

When will the discount narrow?

Scottish Mortgage shares are currently trading at a 21% discount to the underlying value of its assets. This discount has been steadily widening for some time now, as can be seen below.

Source: Scottish Mortgage

With no discount, the shares would actually be up around 9.5% over the last year. But investors continue to worry about the value of the trust’s private holdings, which is a valid concern.

Nevertheless, I think the discount could narrow in the coming months as the US initial public offering (IPO) market restarts after its 18-month deep freeze.

It’s been reported that lithium-ion battery maker Northvolt, a large unlisted holding, is thinking about going public this year. And it could be valued at over $20bn. Also, SpaceX could list its Starlink operation soon, and maybe other holdings could likewise pursue an IPO.

This could soothe investors fears about unlisted valuations and ultimately begin to narrow the discount. Either way, I’ll be holding on to my shares for the ultra-long term.

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.

Ben McPoland has positions in Apple, Nvidia, Scottish Mortgage Investment Trust Plc, and Tesla. The Motley Fool UK has recommended Apple, Finsbury Growth & Income Trust Plc, Nvidia, and Tesla. 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

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »