Scottish Mortgage shares surge 38% this year — can the rally continue?

Rarely has the £17.3 billion investment trust Scottish Mortgage appeared less connected to its name.

To those unfamiliar with it, the trust — a favourite among private investors — might sound like a rather unexciting way to invest in Scottish lenders.

In reality, the Baillie Gifford trust is a huge bet on US technology, with artificial intelligence at its core.

Its biggest holdings include Nvidia, the semiconductor giant widely seen as the standard-bearer of the AI boom; Anthropic, creator of the Claude AI system; and SpaceX, Elon Musk’s rocket and AI business, alongside his interests in Tesla and X.

Concern about an AI bubble is building by the day. Even so, Scottish Mortgage shares have climbed 38 per cent since January, reaching a record high of 1637p as several of its investments have delivered spectacular gains.

Nvidia has been one of the trust’s standout performers. The chipmaker is approaching a $6 trillion valuation — a level no listed company has previously achieved.

Its shares have risen 20 per cent this year to $239, leaving them 14,111 per cent higher than they were a decade ago.

The worry that gains of this scale cannot continue has prompted Scottish Mortgage supporters — myself included — to consider whether it is time to take profits

and move away from this and other high-flying technology investment trusts.

Alternatively, could this be the time to double down, using the ‘discounts’ on offer as a cheaper way to benefit from the changes AI is expected to bring?

Investment trust share prices may have surged. In most cases, however, they still trade at a ‘discount’ — a gap between the market price and the value of their underlying assets, known as net asset value.

Are these discounts the investment bargain of the moment, or are they ‘value traps’ that could lure investors into losing substantial sums?

Here is how to weigh up the decision.

Reasons to be cheerful… or fearful 

Oil has touched $100 a barrel, bond yields have risen and US interest rates could be increased again.

Yet the S&P 500, Wall Street’s benchmark index, reached a record high this week. Investors are betting that Nvidia and other mega-cap technology companies, including Alphabet — Google’s parent — Apple and Amazon, can act as a ‘defensive’ investment.

The reasoning is that these companies have strong pricing power, relatively little debt and substantial cash reserves, making them better placed to withstand higher borrowing costs.

One commentator described their balance sheets as ‘fortress-like’. However, as Jason Hollands of Bestinvest notes, the technology giants are also funding their expansion through bonds, meaning higher yields could make that financing more expensive.

Even so, traders are hoping that technology companies’ already substantial profits will be boosted further by their heavy spending on data centres and other areas of AI development.

According to the Quantum Strategy & Geonomics think-tank, total spending since 2013 has reached $3.1 trillion.

This sum is larger than ‘the combined cost of the Vietnam War, the US Interstate Highway System, the Apollo space programme, the post-war aid programme the Marshall Plan, and the eradication of polio’.

Why major holding Nvidia is ‘cheap’? 

Against this optimistic backdrop, Bank of America and many other analysts consider Nvidia to be ‘cheap’, despite its lofty market capitalisation.

As Hollands highlights, Nvidia’s price-to-earnings ratio, a key valuation metric, has dropped from 39 times last summer to 25 times today.

Among the 61 analysts that follow the stock, as many as 48 rate it a ‘Buy’.

BNP Paribas analyst Karl Ackerman, who sees Nvidia as ‘the cornerstone of AI infrastructure’, has raised his target price for the shares from $285 to $345.

Stacy Rasgon, analyst at Bernstein, has set a target of $400.

You get AI and tech stars at a discount 

Optimistic assessments about the payback from AI suggest that backing this revolution through Scottish Mortgage and other tech trusts could deliver rewards.

Darius McDermott of Chelsea Financial Services argues that AI could ‘drive the biggest step change in productivity and growth in decades’.

But it is an adventure only for those with strong nerves. If you are interested, check first how much you already have invested in this sector through US index funds. You may, without knowing it, already be on an AI adventure.

Scottish Mortgage is trading at a discount of about 9 per cent, something of a relief to long-term investors like me who watched the discount widen to 23 per cent at the time of the trust’s post-pandemic slump in 2023.

If you commit some money to the trust now, you would gain a slice of SpaceX, Nvidia and Taiwan Semiconductor Manufacturing Company (TSMC), but also of unlisted holdings like Anthropic. 

This start-up, which has been at the centre of the controversy over AI’s threat to humanity, will make its much-anticipated stock market debut very soon. The company aspires to a $2trillion valuation, as a leaked draft prospectus reveals. SpaceX was floated in June with a valuation of a mere $1.76trillion.

The Scottish Mortgage alternatives 

If you are minded to embark on a tech escapade, another way to gain early access to the Anthropic IPO (which is almost certain to be a bonanza) is through Schiehallion, another Baillie Gifford trust which mostly specialises in late-stage private companies.

Schiehallion’s portfolio also encompasses Bending Spoons, the Italian tech group which floated in New York earlier this year. 

Schiehallion’s managers are wary of ‘elevated’ AI valuations and could look for opportunities in other parts of the tech sector – useful if you are looking to broaden your exposure.

If you wish to go all in, McDermott’s pick is Polar Capital Technology, which takes an ‘AI maximalist approach’.

The trust’s five largest holdings are Nvidia; Alphabet; Microsoft; TSMC and chip maker Advanced Micro Devices. Polar Capital Technology’s shares are 53 per cent higher than at the start of the year but the discount is 9 per cent.

During the tech sell-off of August 2025, this column detailed Polar’s philosophy, which led me to invest my own money.

I also have some savings in Allianz Technology, which is Hollands’ top selection. Its largest stakes are Nvidia, Microsoft, Alphabet, chip maker Broadcom and TSMC, indicating a conviction that the AI disruption should prove remunerative. This trust’s shares have gained 47 per cent since January, and the discount is 8 per cent.

I am not selling out of any of my tech trust plays but trepidation will ensure that I step up my efforts to diversify the rest of my portfolio.

The discounts are doubtless appealing. But only if you have a taste for adventure.