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Scottish Mortgage (LSE: SMT) shares are having a great run in the mean time. 12 months up to now, they’re up about 15% versus a acquire of 8% for the FTSE 100 index.
My prediction (and naturally, it’s simply my opinion) is that this 12 months, returns from the growth-focused funding belief will beat these from the Footsie. Right here’s my funding thesis.
A play on AI
One purpose I’m bullish on Scottish Mortgage proper now’s that the belief has loads of publicity to synthetic intelligence (AI) shares. I count on this space of the inventory market to proceed performing effectively in 2025 as AI applied sciences take pleasure in extra adoption.
What I like about Scottish Mortgage is that it has publicity to several types of AI shares. Not solely does it personal associated infrastructure shares akin to Nvidia, ASML, and Taiwan Semiconductor Manufacturing Firm (all concerned in AI chips), but it surely additionally owns software program/utility shares akin to Amazon, Meta Platforms, and Snowflake.
That is vital. Over the past two years, the AI story has largely been in regards to the buildout. That’s why shares like Nvidia have completed so effectively. Now nevertheless, we’re getting into a brand new section the place corporations are rolling out AI options for his or her prospects. On this section, I feel shares like Amazon and Snowflake may do effectively.
It’s price noting that the FTSE 100 doesn’t supply loads of publicity to AI. There are just a few Footsie corporations which can be rolling out options right now, akin to London Inventory Alternate Group, Sage, and RELX however, usually, AI’s not a serious theme for this index.
High holdings may do effectively
Another excuse I’m bullish on Scottish Mortgage is that I imagine a number of of its prime holdings have the potential to ship substantial positive aspects in 2025.
One such holding is Amazon, which on the finish of January was 6.3% of the portfolio. It at the moment trades for round $230. Nevertheless, in the previous few weeks, many brokers have raised their worth targets to between $265 and $290. That means potential positive aspects of round 15-25% from right here.
One other is Nvidia (4.1% of the portfolio). Regardless that this firm is extra concerned within the AI buildout, I feel it has the potential to outperform in 2025. Presently, it trades on a forward-looking price-to-earnings (P/E) ratio of simply 30. That’s a low valuation for this firm.
In fact, there are shares within the FTSE 100 that might carry out effectively too. A number of of the highest 10 constitutions, akin to GSK and HSBC Holdings, look low cost proper now. I personally have extra conviction within the likes of Amazon and Nvidia nevertheless. For my part, these corporations have stronger long-term development prospects.
I might be flawed
I’ll level out that there are dangers that might derail my bullish funding thesis. One is a shift in sentiment in the direction of synthetic intelligence and consequently AI shares. This might see Scottish Mortgage shares underperform the FTSE 100.
One other is an surprising enhance in rates of interest. This might result in weak point for tech shares.
Total, I’m nonetheless fairly optimistic about Scottish Mortgage’s prospects. I imagine the belief is price contemplating (as a higher-risk long-term development funding) for a portfolio right now.
