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

Blue Whale Growth Fund Shifts Away from Big Tech

The Blue Whale Growth Fund (BWGF), backed by billionaire Peter Hargreaves, has made significant changes to its portfolio, reducing exposure to major US technology stocks while maintaining a strong position in Nvidia. This strategic shift comes amid concerns over the high costs of artificial intelligence (AI) investments and uncertain returns from these expenditures 1

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Microsoft and Meta Stakes Reduced

Stephen Yiu, the fund manager, reported that BWGF has "aggressively" sold shares in Microsoft, reducing its holding from around 8% of the portfolio in January 2024 to just 2%. This move pushed Microsoft out of the fund's top 10 holdings for the first time since its launch in 2017 2

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Similarly, the fund has decreased its stake in Meta Platforms from 5% to 3%, citing concerns about further AI-related spending increases 1

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Focus on Hardware and Infrastructure

As of November 30, Blue Whale's top ten holdings now reflect a greater emphasis on hard digital infrastructure. The fund's largest holdings include semiconductor companies such as Applied Materials (9.94% of total assets), Nvidia (9.91%), Broadcom, Lam Research, and Taiwan Semiconductor Manufacturing Company (TSMC) 3

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Rationale Behind the Strategy

Yiu explained that the decision to offload Microsoft and Meta stems from concerns about dwindling returns from Big Tech stocks that have seen significant value inflation in 2024. He believes that the revenues these firms generate from AI won't be sufficient to offset the massive investment costs they have incurred, at least in the near term 3

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Nvidia Remains a Key Holding

Despite the overall reduction in tech stocks, BWGF maintains a strong position in Nvidia, which represents nearly 10% of the fund, valued at around £100 million. Yiu has had to sell some Nvidia shares as the company's market value has grown, netting a profit of £100 million 1

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Broader Market Implications

The Blue Whale Growth Fund's strategy shift aligns with a growing trend among top investors, including Warren Buffett and Terry Smith, who have recently scaled back or sold out of certain "Magnificent Seven" companies. This comes as Wall Street grows increasingly nervous about when returns will materialize from Big Tech's capital spending splurge, which is set to surpass $200 billion this year 1

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Fund Performance and Outlook

Despite these changes, the Blue Whale Growth Fund has performed well, returning 24% this year to the end of November, compared to the average 15% return of rival funds. The fund manages £1.3 billion and invests in global stocks, with Hargreaves' family holding in the fund worth more than £200 million 1

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Yiu remains cautious about the future prospects of the Magnificent Seven stocks, excluding Nvidia, suggesting they could potentially be a drag on the market due to their increased capital intensity and significant AI infrastructure spending 1

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