Baillie Gifford is an Edinburgh investment partnership founded in 1908, famous for ultra-long-horizon, high-conviction growth investing — its early stakes in Amazon, Tesla and NIO are classics. Its "actual investors" philosophy holds world-changing companies on 5-10 year views; AUM is around $120bn. The Insights column carries its managers' investment views and thematic research.
This article explains how the Monks fund picks stocks in the AI boom. They split the market into three groups: AI hardware, digital services, and industrial stocks. Instead of chasing every AI name, they focus on quality companies like SK Hynix (trading at under 6 times forward earnings, meaning it's cheap) and Linde. For ordinary investors, it means avoiding the hype and looking for undervalued opportunities. It's worth reading because it emphasizes long-term endurance over short-term race wins.
Monks fund believes the current market dispersion offers a rare buying opportunity. By simultaneously positioning in AI hardware leaders, adding positions in digital services that have plunged, and endurance stocks in non-AI sectors, it constructs a portfolio with valuations in line with the index but with faster growth. [Bullish]
| Ticker | Direction | Author's One-Line View | Key Data |
|---|---|---|---|
| NVIDIA | Hold & Observe | AI hardware leader with irreplicable core advantages; continue holding. | Not mentioned |
| TSMC | Hold & Observe | Similarly possesses a difficult-to-imitate process leadership; maintain allocation. | Not mentioned |
| SK Hynix | New Build | Chip memory supplier, complementary to Samsung, with reasonable valuation and persistent supply shortages. | Less than 6x forward P/E |
| Lasertec | New Build | Added chip equipment provider, benefiting from the AI hardware investment wave. | Not mentioned |
| BE Semiconductor Industries (BESI) | New Build | Added chip equipment provider, reinforcing semiconductor manufacturing. | Not mentioned |
| Wärtsilä | New Build | Beneficiary of data center power equipment; positioned in AI infrastructure. | Not mentioned |
| MediaTek | New Build | Edge computing chip maker; entering AI terminal application scenarios. | Not mentioned |
| Samsara | Add Position | Digital services sector; market underestimates its sustainable growth potential. | Not mentioned |
| Shopify | Add Position | Similarly, adding positions during the valuation collapse triggered by AI. | Not mentioned |
| Adyen | Add Position | Leader in payments; believes valuation is reasonable after market overreaction. | Not mentioned |
| Axon | New Build | Law enforcement equipment maker; AI-driven software business growth is underestimated by the market. | Not mentioned |
| Anthropic | New Build | Directly participated in USD 65 billion private financing round; bets on exponential growth of an AI disruptor. | USD 65 billion valuation |
| Linde | New Build | Industrial gas leader; reduces cyclicality through M&A capabilities and customer relationships. | Not mentioned |
| RBC Bearings | New Build | Aerospace/defense bearing manufacturer; a resilient industrial. | Not mentioned |
The report argues that massive investments in AI infrastructure have split the market into three groups, with AI hardware companies (such as chips, cooling, and power equipment) as the leaders. The author believes that true value lies in possessing core advantages that are difficult to replicate, rather than in marginal suppliers that benefit only in the short term. The original text explicitly states: “We prefer to own the highest-quality companies here, such as NVIDIA and Taiwan Semiconductor Manufacturing Company (TSMC), that do things that cannot easily be replicated.” On this basis, the Monks fund added memory supplier SK Hynix (complementing the existing position in Samsung), chip equipment makers Lasertec and BE Semiconductor Industries (BESI), data center power beneficiary Wärtsilä, and edge computing play MediaTek. The author emphasizes that these companies trade at reasonable valuations (e.g., SK Hynix at less than 6x forward P/E) and that the market underestimates the persistence of supply shortages. Contrasting the short-term gains of marginal suppliers, the author likens it to “stage wins” versus “battle-hardened riders.”
The software and digital services sector experienced valuation plunges triggered by AI tools such as Anthropic, but Monks opportunistically added to companies with sustainable growth potential and directly participated in the funding of AI disruptors. The report reviews positions added in the previous quarter—Samsara, Shopify, and Adyen—and adds Axon (a supplier of Tasers and cameras for law enforcement), arguing that the market underestimates the growth of its AI-driven software business. At the same time, the author warns that some software companies may become casualties of AI disruption. The key action: “That is why we took part in Anthropic’s $65bn private funding round in May on behalf of Monks shareholders.” The author describes Anthropic with terms like “exponential growth” and “unbounded upside potential,” acknowledging the risk but emphasizing the extremely high potential return ceiling.
In sectors less affected by AI (referred to by the article as “peloton”), Monks continues to broaden its exposure to healthcare innovation, emerging-market leaders, consumer brands, and resilient industrial companies. Notable new additions include industrial gas leader Linde (whose M&A capabilities and customer relationships reduce cyclicality) and aerospace/defense bearing manufacturer RBC Bearings. The author believes these companies have ample growth reserves and that the rising penetration of AI actually increases the diversification value of unrelated sectors. The article cites a data comparison: the valuation of the Monks portfolio is on par with the FTSE World Index, the first time this has occurred since the management team took over in April 2015.
The institution judges that the current market divergence offers rare buying opportunities. By balancing allocations among leaders, laggards, and the large middle group (“peloton”), Monks has constructed a portfolio that grows faster, has better profitability, and is valued on par with the index. The core conviction is that most of the short-term AI leaders will be overtaken; endurance and selectivity are the keys to long-term outperformance. Investors should note that Monks’ active moves (e.g., participating in Anthropic's private placement) entail high volatility risks, but the author believes the overall portfolio has a sufficient valuation safety margin.