Why Scottish Mortgage cut its stake in Nvidia

Scottish mortgage has revealed a shake-up of its artificial intelligence exposure, with the trust cutting its stake in a chip-making giant after a notable run of share price growth.

Baillie Gifford’s Tom Slater, manager of the £14bn trust, told shareholders on Friday that his team had focused its attention on the “high costs” associated with adopting AI technology.

On this basis, Scottish Mortgage reduced its exposure to Nvidia, the leading designer of AI semiconductors, in the first half of its financial year.

Slater said: “Companies must find ways to offer AI systems at competitive prices while managing the rising costs of training them.”

“This raises concerns about the sustainability of current spending on capital goods, including Nvidia chips.”

It is unclear when Scottish Mortgage sold Nvidia shares, which have soared more than 200 percent in 2024 as profits soared.

But Nvidia remains Scottish Mortgage’s largest holding, accounting for 6.8 percent of the portfolio, according to data from the Association of Investment Companies.

Slater said: ‘Our investment in the AI ​​ecosystem is not limited to Nvidia. We have increased our exposure to Meta Platforms, the parent company of Facebook, Instagram and WhatsApp.

«AI will improve Meta’s products and its business model offers many options to finance the necessary computing capacity. “Their leadership team has a strong track record of successfully integrating technological innovations, giving us confidence in the future of their strategy.”

It came as Scottish Mortgage updated investors on its performance in the first half.

The trust’s shares have added 33.4 per cent over the past year, as the total return on value of its net assets has risen 24.7 per cent.

Its benchmark index, the FTSE All-World, has added 29.2 percent over the same period.

Slator highlighted SpaceX’s “remarkable progress” as a key positive factor contributing to performance in the six months to September 30.

Meanwhile, drug developer Moderna and European battery maker Northolt, which has struggled with production delays, have weighed on profits.

Like many London-listed investment funds, Scottish Mortgage continues to trade at a stubborn 9.6 per cent discount.

Company Chairman Justin Dowley said the board had been engaging with “several” major shareholders about possible efforts to address the discount.

He said: ‘Some advocate for greater buyback activity, while others believe capital is better spent in long-term investments.

‘Balance is required. We take a pragmatic approach in making capital allocation decisions between share repurchases and other uses of capital, such as making new investments and reducing debt.

“Together, the Board and Management remain committed to continuing the buyback.”