Nvidia‘s (NASDAQ: NVDA) performance over recent years has been incredible. Since the start of 2024, the chipmaker has soared 167%. Over five years, the gain has been an astonishing 3,450%. That is good news for shareholders in one Edinburgh-based investment trust. Nvidia is the single biggest holding in its portfolio, accounting for 8.8% of its total value.
Step forward Scottish Mortgage Investment Trust (LSE: SMT).
The trust is no stranger to engaging tech growth stories, having been an early and long-term investor in Tesla. It has reduced its Tesla holding but the carmaker is still one of its top 10 holdings.
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Proven strategy strikes again
The Scottish Mortgage share price has shot up 73% over the past five years. That reflects some uneven performance though. While it has been moving broadly upwards over the past year or so, it remains far below its 2021 peak.
As it publishes the net asset value of its portfolio on a daily basis, investors (or indeed anyone) can see what each share should be worth (on paper, at least) if the trust liquidated its assets. The shares currently sell at a discount to their net asset value.
The longer-term value swings have reflected the ups and downs of the tech boom. As Scottish Mortgage has focused heavily on this sector, declines in shares like Tesla have hurt its valuation.
On the plus side though, surging prices for current tech sector darlings like Nvidia have helped support an increasing valuation for Scottish Mortgage shares.
Potential for further gain
Nvidia is not the only exposure Scottish Mortgage has to the booming chipmaker sector. In fact, its third largest holding is another chip manufacturer, ASML.
There is a risk if chipmaker share prices fall, for example because the initial surge of AI-linked customer orders is not sustained. That could hurt the value of both Nvidia and ASML. That would also likely hit the Scottish Mortgage share price.
But the investment trust is diversified across dozens of different companies, from Ferrari to Netflix. The two soaring chipmakers account for just under 16% of the overall portfolio.
With a range of holdings in other tech firms, alongside investments in sectors from pharma to luxury goods, I think Scottish Mortgage could perform strongly in years to come if its asset managers have bought into the right firms at the right prices.
I’d happily buy
Scottish Mortgage started investing in Nvidia in 2016. It may have altered its stake since then, but it ought to have seen substantial benefit from owning the shares at a point when the chipmaker took off.
The investment approach of buying into promising tech companies and then holding them for the long term has been a successful one for Scottish Mortgage.
There is a danger that it overpays, as has been the case for some of its past holdings. That could hurt the share price.
On balance though, I continue to like the investment trust’s strategy and would happily buy its shares today if I had spare cash to invest.
