Meet the fund manager: Stephen Yiu on Meta, Nvidia and cashing in on the AI boom

In this weekly series, investment reporter Elliot Gulliver-Needham sits down with a fund manager for a Q&A. This week, we’re hearing from Stephen Yiu, manager of Blue Whale Growoptith fund.

This is a transcript from an interview you can watch online. It has been edited for length and clarity.

How has your fund evolved since its launch?

So the fund was launched back in September 2017, and what has been quite interesting is that we started off investing a lot in digital transformations. I’m sure people will recall during the pandemic about e-commerce, digital advertising, software, cloud, digital payments, etc.

But what has changed is in 2022, we recognised there had been a regime change on the back of the Ukraine crisis and interest rates staying higher for longer. At the same time, geopolitical risks remain uncertain, so that will lead to certain reshoring opportunities.

Which stock in your portfolio are you most excited about right now?

I think one area that has not been well spoken about is our exposure within the semiconductor equipment space. We have both Lam Research and Applied Research in our top 10, and what these companies do is they sell mission critical equipment into the foundries.

If you’ve been reading the news about geopolitical uncertainty in Asia, currently Taiwan produces over 90 per cent of our high end semiconductors. So what has happened over the last couple of years is we started with the CHIPS Act in the US, which was about $50bn of tax subsidies, and we have the same amount of money in the European Union.

So we have over $100bn worth of tax subsidies to incentivise companies like Intel, TSMC, or Samsung to build new foundries anywhere outside of Taiwan, and if you are selling the mission critical equipment, you’re actually benefitting from some of the geopolitical uncertainty and you end up selling more of your equipment into the new foundries.

You’ve been a big advocate for Nvidia. How far do you see the company growing?

The reason Nvidia has managed to become so big today is about the opportunity for generative AI. So people would have used the likes of Chat GPT or Office 365 Copilot.

Without the GPU [graphics processing units] that Nvidia have got, we would not have any of the applications we’re talking about today. Everyone is paying Nvidia in order to power their applications.

We would not be surprised if at some point Nvidia is the biggest company in the world. Currently, it is only $1 trillion short of Microsoft, about $500bn short from Apple. It’s already bigger than Google and Amazon.

I think the question for us as an investment manager is about upside potential. So if you think Nvidia is going from $2 trillion to £3 trillion in a period of around two years, then you are making about 50 per cent.

So from our perspective, we always want to optimise our performance potential, so if we can make 50 per cent in two years, that’s great. But if we have something better that we can make 50 per cent in one year, then we would rather have a bigger position in that company.

So we are still very optimistic about the future of Nvidia, but from an investment manager perspective, then we want to optimise the portfolio performance as much as we can.

Have you made any changes to the fund recently?

One stock that comes to mind is Meta. We’ve done very well on the back of Meta since we started back in 2017, then we actually exited our position in January 2022 on the back of Facebook changing its name to Meta.

At the time we didn’t really believe in the metaverse within the current time frame. It could happen in 50 years time, but the company was spending a lot of money and changed the direction of the company.

We did very well on the back of that because then the share price went down a lot in 2022, but when we got on to 2023, of course we already had a very big position in Nvidia and we were looking for new opportunities that could benefit from AI, and Meta was one of those companies.

We believe Meta is going to be the most effective medium to deliver personalised advertisements. They have on average over three billion people using one of their applications, Facebook, Instagram and Whatsapp on a daily basis.

So we did a lot of work over the summer and then reinitiated a position in Meta in the fourth quarter of 2023, so only six months ago, and if you follow the share price since then, it has done very well in the fund.