Chip stocks Nvidia and Taiwan Semiconductor (TSMC) have been pretty hot. But nowhere near Micron Technology and Advanced Micro Devices (AMD), which have been hotter than the sun’s surface.
In just the past month, Micron and AMD are up 77% and 88% respectively. So it’s no surprise to see them and Nvidia represent three of the four most-bought stocks on AJ Bell in the last 24 hours.
The reason, of course, is that there’s a memory chip shortage due to sky-high demand from the artificial intelligence (AI) infrastructure buildout. And due to this, the profits at these chip firms are going through the roof, with no sign of the shortage ending anytime soon.
For investors who are unsure which chip stock to buy, the following investment trust holds all the big names and is trading at a sizeable discount to its underlying net asset value (NAV).
All-in
Manchester & London Investment Trust (LSE:MNL) is a £362m-cap business that’s gone all-in on this AI theme. Led by manager Mark Sheppard, it’s made a big bet that almost all of the value will go towards AI hardware companies rather than software or anywhere else.
As such, it has had a massive portfolio weighting towards Nvidia (42% last month), Broadcom (11%) and TSMC (10.3%). These helped drive a 21.6% total return in April, thrashing the Nasdaq 100‘s 12.6%.
The trust’s three-year share price return is now an excellent 166%, while the 10-year NAV return is 449%. Since the management team took over in September 2015, the total return (with dividends reinvested) is around 17% a year.
AI-packed portfolio
We have positions in Memory, CPUs, GPUs, TPUs, Optics, Networking, AI Model Labs, Semi Fabrication, Semi Equipment, Energy, Power & Cooling, Financial Applications, Neo-Clouds, Robotics, and Space.
Manchester & London Investment Trust.
Zooming in a little closer on the portfolio, we see many companies that are creaming it today as hyperscalers such as Amazon, Meta, Google and Microsoft spend a fortune on data centres.
These are essentially the ‘picks and shovels’ of AI.
| What it does | |
|---|---|
| Nvidia | AI accelerators |
| Broadcom | Networking and custom AI chips |
| TSMC | Leading semiconductor foundry |
| Bloom Energy | Fuel-cell power systems |
| Lumentum | Optical networking components |
| AMD | CPUs and AI GPUs |
| SK Hynix | Memory chipmaker |
| Ciena | Fibre-optic networking gear |
| Vertiv | Data centre cooling and power systems |
| Coherent | Optical and laser components |
| Lam Research | Chip manufacturing equipment |
| Micron | Memory and storage chips |
| Alphabet | Search, cloud, and AI services |
Concentration risk
Of course, an extremely high concentration like this adds significant risk. Were the market to turn bearish on the AI hardware theme, the trust would almost certainly underperform badly.
That said, management’s been making some portfolio adjustments recently that reduces this risk somewhat. For example, Nvidia has been trimmed and now represents ‘just’ 24.5% of assets.
The reason for the cut is that the trust believes Nvidia may experience some production delays with its next-generation Vera Rubin chip. However, with AI capital expenditure expected to top $1trn in 2027, it still sees a path to $500 for Nvidia stock within three years.
If so, that would be a more than doubling from today’s share price.
Rare combo
Is the stock worth considering for bullish AI investors? I think so, as Manchester & London’s currently trading at a 23% discount to NAV, thereby offering a cheaper and more diversified way to invest than buying the individual AI-related shares.
Plus, the trust intends to pay a minimum 40p dividend for the next five years. Based on the current share price, that translates into a dividend yield of 4.2%.
It’s a very rare combo to get massive AI growth exposure and decent passive income in a single stock.
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