Blue Whale Capital has reduced its investments in key U.S. tech firms, including Microsoft and Meta, due to concerns about high AI costs. Fund manager Stephen Yiu indicated that Microsoft’s return on capital may decline, hinting at the potential for complete disinvestment. Nvidia remains a favored holding, despite the broader negative sentiment towards other tech stocks.
Blue Whale Capital LLP, an investment fund managed by Stephen Yiu and supported by billionaire Peter Hargreaves, has significantly reduced its investment positions in several major U.S. technology firms due to concerns regarding the escalating costs associated with artificial intelligence (AI). As reported by the Financial Times, the fund has decreased its stake in Microsoft Corp. from 8% to approximately 2% of its total portfolio, thus removing it from the fund’s top 10 holdings for the first time since its establishment in 2017. Additionally, Yiu has lowered the fund’s investment in Meta Platforms Inc. from 5% to 3%.
Yiu articulated that the return on invested capital for Microsoft is “likely to decline from here, given the significant investment made in AI infrastructure.” He noted that the fund might contemplate divesting entirely from Microsoft if the expenditures on AI development eclipsed the company’s capacity for cash generation. While the outlook on the remaining firms within the so-called Magnificent Seven tech stocks has diminished, Nvidia Corp. remains a stronghold within the fund’s portfolio, suggesting a continued confidence in its market position.
In recent years, there has been a growing emphasis on artificial intelligence in the technology sector, prompting significant investments from major companies like Microsoft and Meta. However, the rising costs associated with these AI projects have led some investors to reconsider their stakes. The Magnificent Seven refers to a group of leading tech firms, including Microsoft, Meta, and Nvidia, known for their substantial market impact. The strategic reduction of stakes by Blue Whale Capital highlights the cautious approach some investors are adopting amid evolving market dynamics driven by AI investments.
In summary, Blue Whale Capital’s recent decision to diminish its investments in major technology companies, particularly Microsoft and Meta, reflects a broader concern regarding the sustainability of returns amid soaring AI-related costs. Fund manager Stephen Yiu’s comments underscore a critical assessment of the companies’ financial prospects, with Nvidia standing out as a continued investment priority amidst this cautious outlook.
Original Source: www.bnnbloomberg.ca
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