The history of tech holds a big warning for Nvidia, Microsoft and other AI plays, says this storied investor
Terry Smith, the fund manager of the £23.7 billion ($30 billion) Fundsmith Equity Fund, is often called Britain’s answer to Warren Buffett.
He’s coming off a year in which he underperformed his benchmark, the MSCI world index, which he attributed to weakness in Estee Lauder
among other holdings, though his annualized 15.3% return since 2010 is about 4 points ahead.
In Smith’s annual letter to investors, he said the stock market has decided that Nvidia
will be the winner in designing chips for artificial intelligence and that Microsoft
will be the winner as the provider of an AI model.
“If it can do so at this stage it would seem to me to be a break with tradition. Think back to some of the major technology developments of the past half century or so and the early leaders:
- Microchips: Intel
- Internet Service Providers: AOL
- Mobile Phones: Nokia
- Search Engines: Yahoo
- Smartphones: Research In Motion (Blackberry)
- Social Media: Myspace.”
Where are they now, he asks? (Intel is trying to re-establish itself; Apollo Global Management owns both AOL and Yahoo after both fell on hard times; Nokia and Research In Motion are both out of the phone business; and Myspace no longer exists.)
It should be noted that Smith does hold Microsoft, which after Meta Platforms
was the second-best driver of performance for his fund. He said even if all of the so-called Magnificent Seven fitted the fund’s investment criteria, he would not want to own all of them, owing to concentration risk.