Peter Hargreaves-Led Blue Whale Dumps Tech Stocks — Nvidia the Exception

• Peter Hargreaves’ Blue Whale Growth Fund has offloaded Big Tech Stocks.
• However, the fund’s manager remains bullish on Nvidia.
• Blue Whale Growth Fund’s top ten holdings now consist predominantly of hardware-focused companies.

The Blue Whale Growth Fund (BWGF) has reduced its exposure to major U.S. technology stocks, including Microsoft and Meta.

With the exception of Nvidia, Peter Hargreaves’ investment firm has reportedly become less optimistic about Big Tech stocks amid dwindling returns and surging AI investment costs, the Financial Times reported  on Monday, Dec. 16.

Blue Whale Ditches Tech Stocks

With a portfolio that’s heavily weighted toward U.S. tech stocks, BWGF holds shares in companies including Atlassian, Broadcom, Nvidia, Microsoft and Meta Platforms.

According to fund manager Stephen Yiu, as quoted by the Times, the fund slashed its Microsoft holdings from around 8% of its portfolio to just 2% in January 2024.

Figures from its interim financial statement  for the first half of the year show that it sold Microsoft shares worth £12.3 million during the period.

Although Yiu suggested he remained bullish on Nvidia, the fund offloaded a net total of more than £60 million worth of shares in the American chipmaker.

Compared to the previous focus on software, as of Nov. 30, Blue Whale’s top ten holdings  reflect more emphasis on hard digital infrastructure.

Blue Whale’s Top 10

According to the most up-to-date documents, several key semiconductor players make up BWGF’s largest portfolio companies, including Applied Materials, Broadcom, Lam Research, Nvidia, and the Taiwan Semiconductor Manufacturing Company (TSMC).

Meanwhile, Microsoft, which remained in the top ten as recently as July, has fallen off the list.

Following the first half of the portfolio adjustments, Blue Whale’s largest holdings are Applied Materials and Nvidia, which account for 9.94% and 9.91% of the fund’s total assets, respectively.

Shifting Dynamics in the Age of AI

The overall effect of Blue Whale’s portfolio rebalancing is to shift the focus from software and services to physical infrastructure.

As outlined by Yiu, the decision to offload Microsoft and Meta reflects dwindling returns from Big Tech stocks that have seen their value inflate significantly in 2024.

Yiu’s rationale is that any revenues these firms generate from AI won’t be enough to offset the massive investment costs they have incurred—at least not in the near term. Given this backdrop, Yiu has made the strategic decision to sell high and redirect capital elsewhere.

Unlike cloud and software giants whose AI revenue models are still taking shape, Nvidia and other key hardware players have already witnessed explosive sales growth, much of it driven by Microsoft et al.’s massive data center investments.

To put it another way, given the cost of building up the necessary infrastructure and the time it will take to grow the market, the business model for AI services may not be profitable for several years.

Meanwhile, AI hardware is in massive demand, which translates into increased dividend yields for companies like Nvidia.