Fundsmith Equity's Terry Smith questions if there are any AI winners
Terry Smith (pictured) manager of Fundsmith Equity
In the fourteenth annual letter to his clients, Smith reviewed the past calendar year experienced by clients in his fund, which offered a total return of 12.4%, lagging the wider IA Global peer group's 12.7%. The fund has now underperformed the MSCI World Index on a three- and a five-year basis.
Smith commented on two key events from 2023, starting with the rise of AI themed investing in equity markets, a trend which acted as the «driving forces behind the rise of most of the Magnificent Seven and especially Nvidia».
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Nvidia's share price soared to represent a greater than $1trn market cap in late May 2023, the first AI chip maker to reach the milestone and one of only nine firms to ever achieve that landmark.
Smith noted that AI was not a new concept, however, and opportunities to invest around that space had been present in the market for several years via Microsoft or Google.
The fund has been invested in Microsoft firm for several years and it was the second highest contributor to the fund's performance in 2023, bested only by Meta, formerly Facebook. Smith also criticised the market's rampant reaction to the AI trend fuelling the Nvidia rally.
«The stock market… has decided at the outset that it can identify winners in AI in the form of Nvidia designing the chips on which the generative AI models will run and Microsoft as a provider of an AI model.»
He said: «If it can do so at this stage it would seem to me to be a break with tradition.»
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Smith pointed to some of the «major technology developments of the past half century or so and
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