Is Scottish Mortgage too reliant on the AI boom?

Investor favourite Scottish Mortgage (LSE:SMT)has seen a tentative return to form in the wake of a dire 2022.

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Shareholders have enjoyed a total return of almost 16.2% so far in 2025 (to 17 October 2025). The shares have also made decent gains in the previous two years, kicking off a recovery from a 45% plunge in 2022.

Source: FE Analytics. Past performance is not a guide to future performance.

But this is still a fund with a racy approach, given its focus on disruptive trends such as healthcare innovation and the advance of artificial intelligence (AI). One question is whether the trust is too heavily exposed to the latter.

How reliant is Scottish Mortgage on AI?

The trust’s investment managers Tom Slater and Lawrence Burns sought to address this in a webinar earlier this month, with Burns arguing that the trust’s exposure to AI was “multi-layered”.

“If you start at almost the beginning of the supply chain, we have good-sized holdings in the companies that are enabling these chips to be built,” he said.

“Taiwan Semiconductor Manufacturing (NYSE:TSM) is responsible for making 90% of the world’s advanced chips, and it’s one of Scottish Mortgage’s largest holdings. And then we own ASML Holding NV (EURONEXT:ASML) that produces and has a monopoly on the most advanced lithography machines in the world that TSMC buys, that allows it to make the chips for the world.”

Companies regarded as AI plays feature prominently in the trust’s top 10 holdings: Amazon (NASDAQ:AMZN), which makes the lion’s share of its profits from Amazon Web Services, accounts for 4.6% of the fund, with Meta Platforms (NASDAQ:META) on 4.2% and AI poster child Nvidia (NASDAQ:NVDA) on a 3.2% weighting at the end of August. The team also has a small position in Cloudflare (NYSE:NET) and recently invested in Anthropic, a company that builds advanced AI assistants.

Burns also pointed to other holdings that were “enabling AI”, such as Databricks and Snowflake (NYSE:SNOW), while Shopify (NASDAQ:SHOP) is “adopting AI in a very serious way to massively improve their proposition to merchants”. The last full disclosure of the portfolio’s holdings, in its latest annual report, showed that it had 2.3% in Shopify, 1% in Snowflake and 0.8% in Databricks at the end of March.

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The ubiquity of AI does make the trust’s full exposure hard to measure, with Burns describing it as a toolset “every company is able to use”.

AI has helped drive big share price gains for names such as Nvidia but investors are not short of concerns about such stocks entering bubble territory.

Nvidia recently announced that it would invest up to $100 billion (£75 billion) in ChatGPT-maker OpenAI in a joint venture to build out data centres. But OpenAI will also spend heavily on Nvidia chips as part of the deal, drawing comparisons to “vendor financing” arrangements that proliferated ahead of the dot-com bust in the late 1990s.

Meanwhile, the International Monetary Fund (IMF) has weighed in on the risks, warning that surging AI investment “echoes the dot-com boom of the late 1990s”.

Slater did seek to address some of these concerns, noting that companies were spending heavily on data centres, but that this was driven by demand.

“I think the definition of a bubble, or one definition of a bubble, is that you’re having these huge amounts of money spent with no clear path to making a return on that capital investment,” he said.

“And I just don’t think it’s clear [that this is the case] at this point. There may be overspend, but the thing about these huge organisations is that they can repurpose that capital equipment to do other things. And most of the companies that we own are not deploying this capital.”

Beyond AI: from SpaceX to Ferrari

Scottish Mortgage does have broad exposure to future themes, including the future of advertising and entertainment, the digitalisation of finance and the evolution of transport. While this doesn’t make it any less risky, it can take a more diversified approach than some assume.

One category is “emerging technologies”, which includes top holding SpaceX. The Elon Musk vehicle has made significant technological advances, while earlier this year a share tender offer was reportedly set to drive it to a valuation of $400 billion.

Its status as a private company means UK investors rely on investment trusts, such as SMT and stablemates Baillie Gifford US Growth (LSE:USA) and Edinburgh Worldwide (LSE:EWI), to access it.

Perhaps unsurprisingly, Slater struck a bullish note about the prospects for the company, even with a chunky valuation. His rationale relates to its Starlink division, which offers satellite internet access to remote areas.

“Starlink exited last year with four and a half million subscribers,” Slater said.

“I think Elon has gone on the record recently as saying they now have seven million subscribers. A simple extrapolation, but I think we can probably say they’ll exit this year with about nine million.”

By Slater’s reckoning, charging $75 a month for the service would bring in £8 billion a year of revenue.

“If you add in a couple more doublings and make a reasonable margin assumption, it pays for the whole of SpaceX,” he said.

A closer inspection of the fund’s top 10 holdings points to some variety. MercadoLibre, a Latin American e-commerce play, is the trust’s second-biggest holding on a 6% weighting.

The company has grown much more prominent in the portfolio, having accounted for less than 2% of the fund until around 2022. Two other names that operate in e-commerce, China’s PDD (NASDAQ:PDD)​​​​​​​ and Singapore’s Sea Limited, also sit in the top 10.

The list also includes TikTok owner ByteDance, music streaming name Spotify and iconic carmaker Ferrari.

The presence of the latter in the portfolio, and the team’s recent investment in luxury brand Hermes, did draw questions about how they fitted into a portfolio focused on disruptive trends.

Burns said the team wanted to be “open-minded about the types of companies that can deliver outliers”, noting that Ferrari was “a truly iconic brand that has pricing power that allows it to grow revenue steadily with pricing” and that there ought to be “greater recognition of the quality of this business”.

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It’s finally worth noting that Scottish Mortgage takes a more flexible approach than other global funds, many of which restrict their focus to developed markets.

North America accounted for a relatively low 54.5% of the portfolio at the end of March, with Europe accounting for 17.3%, Asia on 14.5% and South America on 6.5%.

China accounted for all the Asian exposure, with Slater saying this month that the team liked companies which “can make a return that justifies the geopolitical risks of investing in China”. Recent investments include electric carmaker BYD and battery manufacturer CATL.

The team continues to favour unlisted companies, with positions in 51 private businesses accounting for just over a quarter of the portfolio at the end of August. This is quite a concentrated basket: at the end of March just five companies (SpaceX, ByteDance, Stripe, Zipline International and Epic Games) accounted for 61% of the private exposure.