Scottish Mortgage Investment Trust it's a FTSE 100 fund whose objective is to invest in the world's fastest growing stocks. Naturally, many of them are directly related to artificial intelligence (ai).
In fact, as of March 31, the trust had around 17% of its portfolio invested in the following three ai stocks.
The golden GPUs
First is NVIDIA (NASDAQ: NVDA). After an incredible 194% increase in just one year, the chip company currently represents 8% of the trust's assets.
Companies like Goal, amazonand microsoftOpenAI (maker of ChatGPT), powered by, requires tens of thousands of Nvidia graphics processing units (GPUs) to train and run its generative ai products.
Originally designed to enhance the graphics of computer games, GPUs are specialized processors that excel at processing large amounts of data simultaneously.
This makes them ideal for machine learning and a wide range of applications, including generative ai, robotics, and autonomous vehicles.
No wonder Scottish Mortgage calls Nvidia “one of the founding companies of the digital age“.
This is not an exageration. In its last fiscal year (which ended in January), the company reported revenue of $60.9 billion, which was an incredible 126% year-over-year increase. Meanwhile, net profit soared 286% to $32.3 billion.
Looking ahead, a potential risk is that all the tech giants are developing their own custom ai chips, while facing direct competition from Advanced Micro Devices.
However, the trust's directors believe that Nvidia has the competitive advantage and smart leadership to stay on top.
A unique company
The second ai-related stock, which also represents 8% of assets, is ASML (NASDAQ:ASML).
Now, this company does not manufacture or design semiconductors. Instead, it sells lithography systems that etch geometric patterns onto silicon wafers to determine how microchips work.
ASML is the sole supplier of the machines needed to build the world's most advanced ai chips. Therefore, it has monopolistic qualities.
Its next-generation 'High NA EUV' machines are the size of a double-decker bus and cost around $350 million each. So this is not the type of equipment you will find at your local industrial estate.
Unsurprisingly, its main customers are the world's leading chip foundries: Intel, Samsungand Taiwan Semiconductor Manufacturing Company (TSMC). Two of them accounted for more than half of its sales last year, so there is a risk of customer concentration here.
That said, ASML machines should continue to be in high demand as the West builds more foundries to diversify chip manufacturing outside of Asia.
Everyone's foundry
Speaking of TSMC, this is the latest addition to Scottish Mortgage's portfolio. It represents around 1% of assets.
On April 18, TSMC CEO said: “Almost all ai innovators are working with TSMC to address an insatiable demand related to ai..”
Unlike rivals Samsung and Intel, the company does not compete with any of its customers. Hence, it manufactures most of the ai chips in the world. And that's pretty much the case with investing, in a nutshell.
The main risk is an escalation of tensions between Taiwan and China, which could affect the share price.
silly takeaway
In short, ASML provides the machines TSMC needs to make advanced ai chips for companies like Nvidia.
Scottish Mortgage shares offer investors a way to invest in the current ai boom. They can be volatile, but they also trade at a 10% discount to the trust's net asset value. I think it's a bargain.
