Scottish Mortgage cuts Nvidia stake amid fears over AI costs

Scottish Mortgage has sold £866 million worth of Nvidia shares in the space of just six months as the 115-year-old-fund grows wary about the rising costs of artificial intelligence.
The £11.5 billion investment trust, which rose to fame thanks to its early bets on companies such as Amazon and Tesla, has made a total return of more than 8,000 per cent from Nvidia since it first invested in the company in 2016. But the fund is now pulling away from the chip designer, whose shares have risen by more than 200 per cent in the past year thanks to a boom in spending on artificial intelligence technology.
Tom Slater, the lead manager of the trust, said: “The primary challenge hindering large-scale AI adoption remains the high cost. Companies must find ways to offer competitively priced AI systems while managing the skyrocketing costs of training them. This raises concerns about the sustainability of current capital equipment spending, including Nvidia chips.”
Nvidia, whose chief executive is Jensen Huang, is still ranked as the fifth single biggest holding of the fund as of the end of September, behind the online marketplace groups Amazon and Mercado Libre.
The investment trust delivered a total net asset value (NAV) return of 1.9 per cent in its first half to the end of September, compared with a return of 3.6 per cent by the FTSE All-World index, its benchmark. Over the long term the trust has comfortably outperformed, delivering an NAV return of 348 per cent over the past decade, compared with 211 per cent by the index.
Just over a fifth of the Scottish Mortgage portfolio is invested in unlisted companies, including Elon Musk’s space exploration business SpaceX and the TikTok owner ByteDance. However, in this part of the portfolio the average valuation dropped by 11.3 per cent over the period.
• Intel replaced on Dow Jones by Nvidia
This fall was partly because of Scottish Mortgage’s investment in Northvolt, the struggling battery manufacturer. The trust recorded a £4.4 million impairment charge on its investment in the Swedish company, which has struggled with production issues, sluggish demand and intense competition from China. Slater noted that Northvolt needed to “deliver significant improvements if it is to retain the confidence of its stakeholders”.
Shares in Scottish Mortgage traded at an average 8.9 per cent discount to their net asset value in the first half, compared with a discount of 16.2 per cent in the same period the previous year. This has been driven by a huge buyback, the biggest of its kind in the sector, with the trust declaring in the spring of this year that it would set aside at least £1 billion for repurchasing its own shares over the next two years. So far it has bought back 101 million shares at a total cost of £880 million.