Investing in artificial intelligence: two FTSE trusts to consider

As the adoption and integration of artificial intelligence (AI) continue to escalate, investors are increasingly looking for ways to gain exposure to this transformative technology within the realm of investment trusts. Amid this surge, “The Motley Fool UK” highlights two notable FTSE investment trusts that may be of interest to those contemplating a strategic investment in AI.

The first trust, Scottish Mortgage Investment Trust (LSE: SMT), is situated in the FTSE 100, boasting a substantial market capitalisation of £11.8 billion and demonstrating impressive growth with a share price increase of 280% over the past decade. A significant differentiator for Scottish Mortgage is its early investment in Nvidia, a leading player in the AI chip market. The trust initially invested £64 million in Nvidia in 2016 and has since realised a remarkable profit of £1.2 billion while retaining a stake valued at over £500 million.

Scottish Mortgage categorises AI investments into three distinct levels: hardware, infrastructure, and real-world applications. Its diversified holdings encompass prominent companies at each stage of AI’s development. Noteworthy hardware stocks include Nvidia, Taiwan Semiconductor, and ASML, while infrastructure players such as Amazon Web Services and Databricks feature prominently in the portfolio. Additionally, the trust invests in major application developers like Tesla and Shopify, indicating a commitment to capturing growth across the AI landscape.

Despite these strengths, the trust’s strategy also introduces potential risk, particularly because it allocates approximately 23% of its assets to unlisted companies. While it has successfully backed high-profile ventures like SpaceX and Spotify, some investments, such as EV battery manufacturer Northvolt, have faltered. Managing uncertainties surrounding such private market placements is a critical aspect for potential investors to consider.

The second investment trust recommended is Polar Capital Technology Trust (LSE: PCT), which operates within the FTSE 250 and has a market capitalisation of £4.1 billion. Over the past decade, its share price has surged by 510%, indicating strong performance bolstered by robust holdings in high-growth technology entities. This trust has a diversified portfolio that includes renowned companies such as Microsoft—an investor in OpenAI, the creator of ChatGPT—and Broadcom, which recently attained a valuation of $1 trillion.

Polar Capital Technology Trust is notably focused solely on technology stocks, thus heightening its exposure to market fluctuations within this sector. However, the fund’s manager, Ben Rogoff, articulates an optimistic outlook, stating, “We believe that AI not only represents the next general-purpose technology like steam, electricity and the internet, but… a sudden and significant leap that can render existing technologies obsolete.”

Together, Scottish Mortgage Investment Trust and Polar Capital Technology Trust present robust avenues for investors seeking to capitalise on the burgeoning AI sector. Given the emerging nature of AI and the associated risks, potential investors are encouraged to conduct thorough research before making investment decisions.

Source: Noah Wire Services