Blue Whale Growth Fund Reduces Tech Stock Holdings, Citing AI Investment Concerns

Peter Hargreaves-Led Blue Whale Dumps Tech Stocks -- Nvidia the Exception

Blue Whale Growth Fund's top ten holdings now consist predominantly of hardware-focused companies. The Blue Whale Growth Fund (BWGF) has reduced its exposure to major U.S. technology stocks, including Microsoft and Meta. With the exception of Nvidia, Peter Hargreaves' investment firm has reportedly become less optimistic about Big Tech stocks amid dwindling returns and surging AI investment costs, the Financial Times reported on Monday, Dec. 16. Blue Whale Ditches Tech Stocks With a portfolio that's heavily weighted toward U.S. tech stocks, BWGF holds shares in companies including Atlassian, Broadcom, Nvidia, Microsoft and Meta Platforms. According to fund manager Stephen Yiu, as quoted by the Times, the fund slashed its Microsoft holdings from around 8% of its portfolio to just 2% in January 2024. Figures from its interim financial statement for the first half of the year show that it sold Microsoft shares worth £12.3 million during the period. Although Yiu suggested he remained bullish on Nvidia, the fund offloaded a net total of more than £60 million worth of shares in the American chipmaker. Compared to the previous focus on software, as of Nov. 30, Blue Whale's top ten holdings reflect more emphasis on hard digital infrastructure. Blue Whale's Top 10 According to the most up-to-date documents, several key semiconductor players make up BWGF's largest portfolio companies, including Applied Materials, Broadcom, Lam Research, Nvidia, and the Taiwan Semiconductor Manufacturing Company (TSMC). Meanwhile, Microsoft, which remained in the top ten as recently as July, has fallen off the list. Following the first half of the portfolio adjustments, Blue Whale's largest holdings are Applied Materials and Nvidia, which account for 9.94% and 9.91% of the fund's total assets, respectively. Shifting Dynamics in the Age of AI The overall effect of Blue Whale's portfolio rebalancing is to shift the focus from software and services to physical infrastructure. As outlined by Yiu, the decision to offload Microsoft and Meta reflects dwindling returns from Big Tech stocks that have seen their value inflate significantly in 2024. Yiu's rationale is that any revenues these firms generate from AI won't be enough to offset the massive investment costs they have incurred -- at least not in the near term. Given this backdrop, Yiu has made the strategic decision to sell high and redirect capital elsewhere. Unlike cloud and software giants whose AI revenue models are still taking shape, Nvidia and other key hardware players have already witnessed explosive sales growth, much of it driven by Microsoft et al.'s massive data center investments. To put it another way, given the cost of building up the necessary infrastructure and the time it will take to grow the market, the business model for AI services may not be profitable for several years. Meanwhile, AI hardware is in massive demand, which translates into increased dividend yields for companies like Nvidia.

Peter Hargreaves' Blue Whale sells major tech stocks over AI concerns

Blue Whale Growth, the investment fund backed by billionaire Peter Hargreaves, has reduced its exposure to the 'Magnificent Seven' group of major US tech companies due to concerns over their vast expenditure on artificial intelligence. Stephen Yiu, manager of the fund, told the Financial Times that he had "aggressively" sold shares in Microsoft to cash in profits, pushing the stock out of the fund's top 10 holdings in the third quarter for the first time since its launch in 2017. He said: "Microsoft's return on invested capital [is] likely to decline from here, given the significant investment made in AI infrastructure." Yiu said he would "consider selling out" of Microsoft completely if the tech company's AI investments outweigh its cash generation. Shares in the Magnificent Seven -- Microsoft, Nvidia, Apple, Alphabet, Meta, Amazon, and Tesla -- have rocketed in recent years and represent about a third of the S&P 500's market capitalisation. But top investors including Warren Buffett in the US and Terry Smith in the UK have recently scaled back or sold out of certain Magnificent Seven companies. Wall Street has grown increasingly nervous about when returns will materialise from a Big Tech capital spending splurge that is set to surpass $200bn this year. "A lot of people talk about the Magnificent Seven, and we are [backing] Nvidia," said Yiu, referring to the US chipmaker. "Outside of Nvidia, we are increasingly less positive on the [other] six. The capital intensity of these stocks is going up significantly because they are spending a lot on AI infrastructure." "I'm not suggesting that six of the Magnificent Seven stocks will disappear but . . . we think they could be a drag on the market," he added. Blue Whale manages £1.3bn, invests in global stocks and has had a sizeable holding in US tech companies since inception. It was financially backed by Hargreaves, who co-founded the investment platform Hargreaves Lansdown, and former Artemis fund manager Yiu. Hargreaves' family holding in the Blue Whale Growth fund is worth more than £200mn. The fund returned 24 per cent this year to the end of November, compared with rival funds' 15 per cent on average. Yiu's decision to sell down some of the Magnificent Seven is the latest sign that investors have concerns over the companies' future prospects. He said the fund's exposure to some of these stocks, excluding Nvidia, now amounts to only 5 per cent of his portfolio -- far less than the MSCI World's 20 per cent. Yiu has reduced the fund's holding in Microsoft from 8 per cent in January to about 2 per cent. The fund manager also recently sold down Meta, the parent company of Facebook, to take profits "due to concerns about further AI ramp-up" in company spending. He has cut his holding from 5 per cent of the fund to 3 per cent. "The problem with Meta is we are concerned [it] is overspending on AI going into next year," Yiu said. "Ultimately you need to translate your spend into profit and at the moment we are not seeing enough of that." He also sold his stake in Amazon in 2021 and Alphabet, Google's parent company, in 2022. Other investors have dumped large US tech stocks recently. Smith, who runs the £23bn Fundsmith Equity, said last month that he had sold out of Apple just two years after investing in it. Buffett, one of the world's best-known investors, continued to slash Berkshire Hathaway's holding in Apple last month and has cut almost two-thirds of the stake in just over a year. Yiu said Nvidia represented nearly 10 per cent of his fund, valuing the stake at around £100mn. He has had to sell shares as Nvidia's market value has grown, which he said has netted a profit of £100mn. The fund manager is also backing Broadcom, which he said builds AI infrastructure and is a beneficiary along with Nvidia of the money being spent on AI by the rest of the Magnificent Seven. According to Blue Whale's latest accounts, the fund's parent company reported a profit of £4.1mn in the year to March, up from £3.9mn the previous year.

Blue Whale Cuts Stakes in Tech Giants Over AI Costs, FT Reports

A Blue Whale Capital LLP investment fund reduced its stakes in major US technology companies on concern about the costs of artificial intelligence, the Financial Times reported. The Blue Whale Growth Fund, backed by billionaire Peter Hargreaves, cut its holding in Microsoft Corp. to about 2% of the portfolio from 8% in January this year, fund manager Stephen Yiu was quoted by the newspaper as saying. The disinvestment pushed the stock out of the fund's top 10 for the first time since its inception in 2017, according to the FT.