Scottish Mortgage (SMT ) managers Tom Slater and Lawrence Burns took £1bn out of the global equity trust’s Nvidia stake last year on the back of concerns that the AI chip maker’s pricing could prove unsustainable.

Slater explained: ‘We think AI is a sufficiently important general purpose technology that will become ubiquitous. But for it to become ubiquitous, it has to be dirt cheap.’

He pointed to previous technology waves and noted that the widespread adoption of laptops and mobile phones took place because the price of these technologies continued to go down over time.

‘We have been looking at AI systems and have taken the view that some of the convertors of these systems are really pressing but they’re just too expensive. To become ubiquitous, they have to get cheaper and cheaper,’ he added.

‘That is not consistent for us with a $3.5trn company sitting at the heart of the ecosystem, making 70% margins.’

SMT’s current investments in AI are largely in the ‘picks and shovels’, or hardware layer, of the industry. Here, the trust owns chip makers like Nvidia, TSMC and ASML.  

OpenAI out in the cold

OpenAI has not made the cut yet for SMT.

The £11.2bn Ballie Gifford-run trust has upped its allocation to private companies in recent years, recognising that high growth names tend to stay private for longer. Its current portfolio has a 30% cap on private investments and already holds four of the world’s top 10 ‘unicorns’ (private companies with valuations above $1bn). 

Despite regular meetings with OpenAI, the world’s third largest unicorn, Slater said SMT has chosen not to invest in the artificial intelligence leader and owner of ChatGPT.

He acknowledged ‘the technology is great’, but said the investment team needs to see more evidence that OpenAI’s business model matches up and has a ‘degree of differentiation’ that will set it apart from competitors, like DeepSeek and Claude 3.7 Sonnet.

‘There are nuances between these products, but for a lot of tasks they are interchangeable’, he explained. 

In Slater’s view, high prices lie at the root of the problem because OpenAI’s software still costs ‘billions and billions of pounds to create’.

In January, China’s DeepSeek changed the game, rattling global markets with the launch of its new “R1” large language model, which proved Western performance standards could be met at far lower costs. 

Slater called the launch a ‘genuine breakthrough in how to reduce costs’ and believes China will be a frontrunner in the race for differentiation.

‘I think DeepSeek has forced a complete reappraisal of what China’s role might be in the deployment of AI systems’, he said.

Scottish Mortgage remains bullish on China despite the high-tariff environment, with a near 21% exposure to Asia.

Slater also highlighted specific legal niggles concerning OpenAI’s status as a ‘for profit, or not for profit’ business which would need to be resolved before the trust could make a move. 

When it comes to analysing companies, the manager is already benefiting from adopting AI into his process, particularly what he calls the ‘knowledge building’ step.

‘AI is introducing huge efficiencies to that knowledge building step,’ he added.

He fears those who aren’t using AI will ‘get left behind’.

‘You could spend the next five to 10 years just implementing the technology we have today, and it would fundamentally change the business landscape,’ he concluded. 

Over the past three years, SMT’s shares are up 10% which compares to 18.8% by the average trust in the AIC’s global equities sector. SMT currently trades on a 10.5% discount to net asset value (NAV).