Seldom has Scottish Mortgage, the £17.3billion investment trust, seemed less well-named.
To the uninitiated, the trust, a private investor favourite, sounds like a dullish means to back lenders north of the border.
But in reality, this Baillie Gifford trust is a supersized gamble on US technology, and AI in particular.
Top holdings include Nvidia, the semiconductor colossus and poster child of the AI revolution; Anthropic, maker of the Claude AI system; and SpaceX, Tesla and X boss Elon Musk’s rocket and AI conglomerate.
Alarm over an AI bubble grows daily. Yet Scottish Mortgage shares have soared by 38 per cent since January to an all-time high of 1637p, propelled by the soaraway performance of some of its stakes.
One of the stars is Nvidia, which is nearing a $6trillion valuation, a threshold that no listed company has ever reached.
This is thanks to a 20 per cent leap in its shares this year to $239. The price is 14,111 per cent higher than a decade ago.
Top holdings of Scottish Mortgage include Nvidia, the semiconductor colossus and poster child of the AI revolution
The fear that such feats cannot be sustained is making the Scottish Mortgage faithful – like me – ask themselves whether they should take profits
and take flight from this and other soaraway tech trusts.
Or is this the moment to double down, exploiting the ‘discounts’ available as a bargain route to participate in the change that will be wrought by AI?
The trusts’ share prices may have moved sharply upwards. But in most cases, there is still a ‘discount’ or gap between a trust’s price and its net asset value.
Are these discounts the bargain of the season or a ‘value trap’, beguiling the way to lose a lot of money?
Here’s how to decide.
Reasons to be cheerful… or fearful
The price of oil has touched $100-a-barrel, bond yields are up and US interest rates may be raised again.
Yet the S&P 500, Wall Street’s benchmark index, hit a record high this week, thanks to the belief that Nvidia and other mega-cap tech shares like Alphabet, owner of Google; Apple and Amazon are a ‘defensive’ play.
Why? Because these businesses have pricing power, are relatively debt-free, possess plenty of cash and so should be less affected by more burdensome borrowing costs.
One commentator even described their balance sheets as ‘fortress-like’. However, it’s worth noting, as Jason Hollands of Bestinvest points out, that the tech giants are financing their expansion through bonds. The rise in yields could make this form of funding more costly.
Nevertheless, traders hope that tech companies’ bumper profits will be amplified by their prolific expenditure on data centres and every other aspect of AI.
The total outlay since 2013 adds up to $3.1trillion, according to the Quantum Strategy & Geonomics think-tank.
This sum is larger than ‘the combined cost of the Vietnam War, the US Interstate Highway System, the Apollo space programme, the post-war aid programme the Marshall Plan, and the eradication of polio’.
Why major holding Nvidia is ‘cheap’?
Against this optimistic backdrop, Bank of America and many other analysts consider Nvidia to be ‘cheap’, despite its lofty market capitalisation.
As Hollands highlights, Nvidia’s price-to-earnings ratio, a key valuation metric, has dropped from 39 times last summer to 25 times today.
Among the 61 analysts that follow the stock, as many as 48 rate it a ‘Buy’.
BNP Paribas analyst Karl Ackerman, who sees Nvidia as ‘the cornerstone of AI infrastructure’, has raised his target price for the shares from $285 to $345.
Stacy Rasgon, analyst at Bernstein, has set a target of $400.
You get AI and tech stars at a discount
Optimistic assessments about the payback from AI suggest that backing this revolution through Scottish Mortgage and other tech trusts could deliver rewards.
Darius McDermott of Chelsea Financial Services argues that AI could ‘drive the biggest step change in productivity and growth in decades’.
But it is an adventure only for those with strong nerves. If you are interested, check first how much you already have invested in this sector through US index funds. You may, without knowing it, already be on an AI adventure.
Scottish Mortgage is trading at a discount of about 9 per cent, something of a relief to long-term investors like me who watched the discount widen to 23 per cent at the time of the trust’s post-pandemic slump in 2023.
If you commit some money to the trust now, you would gain a slice of SpaceX, Nvidia and Taiwan Semiconductor Manufacturing Company (TSMC), but also of unlisted holdings like Anthropic.
This start-up, which has been at the centre of the controversy over AI’s threat to humanity, will make its much-anticipated stock market debut very soon. The company aspires to a $2trillion valuation, as a leaked draft prospectus reveals. SpaceX was floated in June with a valuation of a mere $1.76trillion.
The Scottish Mortgage alternatives
If you are minded to embark on a tech escapade, another way to gain early access to the Anthropic IPO (which is almost certain to be a bonanza) is through Schiehallion, another Baillie Gifford trust which mostly specialises in late-stage private companies.
Schiehallion’s portfolio also encompasses Bending Spoons, the Italian tech group which floated in New York earlier this year.
Schiehallion’s managers are wary of ‘elevated’ AI valuations and could look for opportunities in other parts of the tech sector – useful if you are looking to broaden your exposure.
If you wish to go all in, McDermott’s pick is Polar Capital Technology, which takes an ‘AI maximalist approach’.
The trust’s five largest holdings are Nvidia; Alphabet; Microsoft; TSMC and chip maker Advanced Micro Devices. Polar Capital Technology’s shares are 53 per cent higher than at the start of the year but the discount is 9 per cent.
During the tech sell-off of August 2025, this column detailed Polar’s philosophy, which led me to invest my own money.
I also have some savings in Allianz Technology, which is Hollands’ top selection. Its largest stakes are Nvidia, Microsoft, Alphabet, chip maker Broadcom and TSMC, indicating a conviction that the AI disruption should prove remunerative. This trust’s shares have gained 47 per cent since January, and the discount is 8 per cent.
I am not selling out of any of my tech trust plays but trepidation will ensure that I step up my efforts to diversify the rest of my portfolio.
The discounts are doubtless appealing. But only if you have a taste for adventure.
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