Baillie Gifford's Slater: AI bubble ‘doesn’t matter’ to Scottish Mortgage

Slater has avoided the infrastructure layer of the artificial intelligence trade, owning chips and everything else on the software level.

Speaking at an investor forum in London last week, Baillie Gifford manager Tom Slater downplayed the risks of an artificial intelligence bubble for the Scottish Mortgage (SMT) portfolio.

‘From a Scottish Mortgage perspective, whether we’re in a capex bubble or not doesn’t actually matter a great deal,’ he said.

The £13.2bn growth trust is heavily invested in AI but avoids direct exposure to some of the most capital-intensive parts of the ecosystem, steering clear of power, data centres and cooling systems altogether.

‘We own chips, and everything else that we own is at the software level,’ Slater explained.

According to its December factsheet, the trust’s largest hardware holdings are TSMC at 5.1% of net assets, and Nvidia at 3.3%.

On the software and applications layer, SMT’s newest stake is Anthropic. It is the developer behind several chatbots and coding tools, including the family of large language model assistants known as Claude.

Slater described Anthropic as ‘one of the fastest-growing technology businesses ever’, with revenues growing at around ten times per annum and ending 2025 with a revenue run rate of just under $10bn.

He described coding as ‘the beating heart of the modern economy’ and a key bottleneck for companies over the past decade. ‘The companies we talk to today are seeing 20–30% productivity gains in their engineering teams from the deployment of these tools,’ he said.

Referring to a conversation with Spotify’s head of research and development the previous week, he added: ‘It’s really only in the past two or three months that the tools have become useful to them, because they’re actually able to ingest the whole of the Spotify codebase and write new code against that.

‘I think that speaks to the fact that these things are still getting better, at a really rapid pace.’

Other AI-related holdings in the portfolio include Databricks, Snowflake, Cloudflare, AWS, Horizon Robotics, Aurora, Figma and Tempus.

Slater recognised the trust’s unabated enthusiasm for AI in recent months has been ‘pretty out of sync’ with some of its peers.  ‘All the discussion has been about whether we’re in an AI capex bubble,’ he said. ‘My view on that is, you have to really differentiate between those who can afford to play this game, and those who can’t.

‘I worry about the likes of Oracle, which has never spent capital on this scale and doesn’t have the cashflows in the existing business to fund it… I worry about where OpenAI is going to get the capital to fund these huge spending commitments that they’ve announced. I wouldn’t invest in the off-balance-sheet financing vehicles that these hyperscalers are using to fund the buffer capacity that they have. 

‘But I don’t worry about the hyperscalers themselves. The capital expenditure numbers that they’re producing are absolutely vast, in any context except the cashflows of those companies – the cash that is coming from their existing businesses,’ he said.