The Scottish Mortgage Investment Trust (LSE: SMT) share price fell to 1,005p on Monday (27 January). That’s 5.1% down from the previous Friday’s close, and it’s all down to the Chinese. Well, the clever Chinese folk behind this new DeepSeek artificial intelligence (AI) thing that’s had US tech stocks facing a panic selling spree.
The developers claim it cost as little as $6m to train the new large language model (LLM), though some experts dispute that. But it’s a lot less than the billions the Magnificent Seven US AI companies have spent. And Scottish Mortgage owns some of those.
Nvidia, which has slumped 17% since DeepSeek shook the Nasdaq to its core, accounts for 4% of the investment trust‘s assets. The AI chip maker now has a market capitalisation of $2.9trn, which is still a lot. But it’s lost almost $600bn, which alone is about two and a half AstraZenencas, the biggest company on the FTSE 100.
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AI risk
Compared to that, Monday’s Scottish Mortgage share price fall looks modest. And it regained 3.7% on Tuesday, the day after the dip. That draws my attention to a key thing I like about it.
Having some of my money in AI makes me smile. But I’m not the kind of growth stock investor who’s happy to take the biggest risks. Scottish Mortgage addresses that via diversification. As well as Nvidia (and Tesla, and Meta Platforms), it holds MarcadoLibre, Spotify, Moderna, Shopify, and a whole host of others.
To get back to risky stocks in the news, Bytedance is also in the mix, still facing uncertainty over its TikTok ownership. But it looks like the pressure is easing off there a bit.
And Scottish Mortgage is a big investor in SpaceX, a private company we can’t buy on its own. I like having small slices of all these, protected from the worst of their individual risks by that diversification. I also like the trust’s 11.5% discount, meaning I can get a slice of these companies cheaper than on the open market.
Toppy US markets
The main thing I don’t like is not the exposure to AI risk. No, I want some of that. My biggest fear is the high valuations of US markets. Prior to these latest falls, the Mag Seven had added around $15trn to the value of the Nasdaq since the end of 2022.
I’ve been looking at the S&P 500‘s Shiller price-to-earnings (P/E) ratio. Normal P/E values go off earnings figures for the previous 12 months. But the Shiller uses the past 10 years. And it’s been edging up towards the highest it’s been since the dot com bubble in the year 2000.
Still, we could be waiting a long time for US stock valuatons to fall. And in the meantime, the individual winners could keep on climbing. Even at today’s price, Nvidia is on a P/E of only 22 based on 2027 forecasts. That looks fair to me.
I think I’m far more likely to top up than sell.
