How we’re playing AI theme, latest view on Nvidia, and recent buys

A year on from when he last appeared in our Insider Interview series, Stephen Yiu, fund manager of Blue Whale Growth, gives an update on the portfolio. He explains why Microsoft and Facebook-owner Meta Platforms are no longer held, and why he’s still backing, and comfortable with, Nvidia’s valuation.

Speaking to interactive investor’s Kyle Caldwell, Yiu explains that a quarter of the fund is invested in the artificial intelligence (AI) theme. He runs through an area of the market he’s recently been building exposure to, and outlines why Uber is now a top 10 position. 

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Kyle Caldwell, funds and investment education editor at interactive investor: Hello, and welcome to our latest Insider Interview. Today in the studio, I’m joined by Stephen Yiu, manager of the WS Blue Whale Growth I Sterling Acc Fund. Stephen, great to have you back in the studio today.

Stephen Yiu, manager of Blue Whale Growth fund: My pleasure.

Kyle Caldwell: So, Stephen, you’ve appeared in our Insider Interview series a couple of times now over the years. For those who are not familiar with the way in which you invest, could you summarise it?

Stephen Yiu: Thanks for that. We run a high-conviction global strategy. We typically invest in between 25 to 35 companies. We do all the research in-house, we don’t speak to any sales analysts.

We build a financial model, and basically what we try to do is to find high-quality businesses that are trading at an attractive valuation. Ultimately, we think we can pick more outperformers than under-performers. If you do it well, then you end up outperforming your peers and also the passive trackers.

Kyle Caldwell: When I last Interviewed you on camera, which was around a year ago, you had exposure to three of the so-called Magnificent Seven stocks. You now only own one, which is NVIDIA Corp (NASDAQ:NVDA), and you’ve since sold Microsoft Corp (NASDAQ:MSFT) and Facebook-owner Meta Platforms Inc Class A (NASDAQ:META). Could you explain why?

Stephen Yiu: The AI journey has been very interesting to us since 2023 when Nvidia surpassed $1 trillion (£759 billion) in market cap. At the time, we were exposed not just to Nvidia, but also to some software businesses and data businesses.

But I think the journey has evolved quite significantly over the last 18 months or so, and where we are today is very cautious on AI spenders. But we remain very constructive on companies or sectors on the receiving end of any AI spending. 

So, then you would think about Nvidia or Broadcom Inc (NASDAQ:AVGO), they still very much remain capital light. At the same time, they’re making a lot of free cash flow today, just because the margin is very high.

But then when you look at the AI spenders such as Microsoft, Meta, Alphabet Inc Class A (NASDAQ:GOOGL) or Amazon.com Inc (NASDAQ:AMZN), the free cash flow has deteriorated significantly.

And at the same time, if you take a forward-looking view, which is our view, we think the return on investor capital profile for some of these companies is going to be a lot lower than before the AI spending.

Kyle Caldwell: Given that you still own Nvidia, I’m assuming that you’re comfortable with its valuation? The stock, of course, has had a very strong run over the past couple of years and indeed over longer time periods than that.

Stephen Yiu: Yeah, the valuation for Nvidia has actually got a lot cheaper over the last two years.

If you think about back in 2022, Nvidia [was] probably trading about 60 times earnings and today it is trading about 30 times earnings one year forward. And 30 times earnings would put Nvidia alongside Microsoft, Apple Inc (NASDAQ:AAPL), Mastercard Inc Class A (NYSE:MA), or even similar to Walmart Inc (NYSE:WMT).

In a way, when you look at the earnings power, or how much money Nvidia is making today versus a few years ago, it has gone up a lot more than the share price increases.

So, despite the fact that Nvidia has gone up from a $1 trillion business to about $4.5 trillion now, the earnings have actually gone up a lot more than that increase in share price.

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Kyle Caldwell: Overall, how much exposure does the fund have to the artificial intelligence theme?

Stephen Yiu: About a quarter of the fund, I would say.

Today, we are very much positioned on the AI infrastructure side, so any company that is on the receiving end of any spending.

It is also our belief, which remains the case today versus some years ago, that AI is going to change the world, AI’s going to change how we operate individually and also professionally. There’s a lot more money that’s going to be invested.

At the same time, we’re going to see many more applications that have just started to come alive, and that is going to sustain the AI cycle, or how AI’s going to change the world.

Kyle Caldwell: You’ve explained why Microsoft and Facebook-owner Meta Platforms are no longer in the fund. In terms of your top 10 holdings, I noticed that Uber Technologies Inc (NYSE:UBER) is now within them. Could you explain why you’ve been adding to that company?

Stephen Yiu: Uber has been quite interesting to us, [and is] very different to, obviously, your AI exposure.

What we like about Uber, there are a few things that’s happening within that. I’m sure most of our audience will be familiar with Uber, but two things that really strike us, apart from the fact that they have dominated or consolidated the transport mobility space in terms of hiring a cab, [is] that they’re now expanding into a new theme.

If you go under Uber Eats, so not just to order takeaways, they have recently started to form partnerships with grocery stores like Sainsbury (J) (LSE:SBRY)’s, Waitrose or John Lewis. At the same time, they’re partnering with Currys (LSE:CURY). In the US, they partner with different retailers.

Suddenly, nowadays, you don’t need to go to supermarkets to order groceries anymore, you can go directly to Uber. The benefit of doing that is that you can get your delivery a lot quicker, or at least you can control it.

If you order it now, you’ll probably get it in the next half hour, rather than having to book a delivery slot, which might be the next couple of days rather than instant.

At the same time, I think we are relatively positive in terms of how autonomous vehicles are going to be a contributor to Uber’s business.

Ultimately, if you look at autonomous vehicles, it is another option, so an alternative to a human-operated taxi. That’s because Uber equally paid out about 70% of the income.

I think most of the big tech companies would rather have a partnership with Uber, so that we still go through the Uber platform while the big-tech company operates the taxi in the back end.

Everyone probably would have seen the news last week that Waymo [owned by Alphabet] is coming to London quite soon next year. So, I think that’s going to be quite interesting in terms of development.

Kyle Caldwell: When comparing your top 10 holdings today with a year ago, one company that’s no longer in the top 10 is European defence firm Leonardo SpA Az nom Post raggruppamento (MTA:LDO). It’s had a strong share price run. Have you been taking profits as a result of that?

Stephen Yiu: Yeah, so we have exposure to Leonardo, which is a European defence company, and we have done very well on the back of that.

We started the journey in 2023 on the back of the Ukraine crisis, but at the same time, I think what had really changed the narrative within the European defence space is on the back of Donald Trump being elected.

We had a much larger position at the beginning of the year, and the share price has more than doubled in the last nine months or so. Obviously, in terms of our investment process, in order to optimise the fund for better outperformance potential, I think you need to take valuation into account.

Leonardo’s valuation, I would say today, is a lot less attractive than at the beginning of the year. So, we have taken a lot of profits and, at the moment, it’s still a very small position.

We still believe that the investment thesis will play out in terms of more spending going into European defence, basically the European Union being forced to do this. But how you translate your investment thesis into a company that can continue to do well, I think that is probably how we are thinking about European defence at the moment.

So, we have taken a lot of profits as far as Leonardo is concerned.

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Kyle Caldwell: Could you talk us through other portfolio activity? What have been the most recent buys for the fund?

Stephen Yiu: So, Uber was one that you mentioned. Also, recently we started to see some positive development within the luxury brand space. Within the luxury exposure, we have two companies; one is Moncler SpA (MTA:MONC) and the other is Burberry Group (LSE:BRBY).

Of course, it could still be early days just because the macro environment has not improved significantly. But there’s some potential that the valuation has bottomed out in a way that [suggests] maybe now is the time to increase your exposure. So, that’s an area that we have been building our exposure to over the last couple of months.

At the same time, within the technology space, there’s still some interesting names like maybe Lam Research Corp (NASDAQ:LRCX). We’ve recently got into the memory or storage space. If you follow AI development, obviously you need the GPU compute, and at the same time you need the AI data centre.

But, thirdly, when you think about the amount of data that’s being generated today, it is not going to be generated by humans, it’s going to be generated by machines. So, we’re going to have more machine-generated data than the entire human population has ever [produced] on record.

So, you would need to have more up-to-date technology in terms of storing data that can be accessed quite quickly. So, we think there’s going be a refreshed cycle in terms of how the memory or storage is going to be done in data centres.

Kyle Caldwell: One thing we didn’t discuss a year ago, which has dominated the headlines so far in 2025, is US tariffs. Have you been making any changes to the fund in response to US tariffs?

Stephen Yiu: I would say that it’s one of those things that we do take into account from a bottom-up perspective. Ultimately, while we invest in companies - we consider ourselves bottom-up stock pickers - what you need to also understand is that every company operates in the real world.

Every company operating in the real world would equally face certain headwinds or challenges that are being imposed by the tariff or by Trump’s policy. And what you try to do as an active manager is avoid companies that might be on the wrong side of the fence.

Hence, when you think about European defence, I would say European defence probably would be one of the few net beneficiaries from Trump’s policy. But equally, there are many companies that are actually probably in the mix of the conversations.

So, what we did last year before Trump was about to be elected, and also during the Liberation Day, is try to reassess how many companies or holdings were going to be impacted by the tariff. I think the one thing that we did - not in a material manner because that is not new news, Trump was very vocal about his policy even before he was elected last year, so you can do a lot of prep work to avoid those sectors - is exit Nintendo this year.

While we have liked Nintendo for the last couple of years and we have done very well, we were very much anticipating Nintendo to launch Switch 2, which they did, but we still think that there might be a bit of headwind just because the Nintendo Switch is going to be a lot more expensive than before.

And in light of tariffs, in light of consumer discretionary spending being squeezed from all fronts, would consumers be upgrading their Switch quite quickly this Christmas? I think that’s a question that we need to ask ourselves.

Even though the investment thesis in terms of the games that they have, the IP they have on their games like the Zelda, the Mario, the Pokemon, that’s not changed. Switch 2 is very beautiful, but it’s just [a question of] how much money would they be making versus expectation, that’s the question mark from our perspective.

Kyle Caldwell: Stephen, thank you for your time today.That’s it for our latest Insider Interview. I hope you’ve enjoyed it. We’d love to hear from you and you can comment. For more videos in our series, do hit the subscribe button. And if you enjoyed it, hit the like button. Hopefully, I’ll see you again next time.