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Scottish Mortgage (LSE: SMT) shares have had a blistering run. Yet it looked like the fun might stop when cut-price Chinese AI upstart DeepSeek popped up.
The fact that DeepSeek could deliver a product that apparently matched ChatGPT on a shoestring budget sent shockwaves through the S&P 500.
Chipmaker Nvidia crashed by $600bn on 27 January, the largest one-day drop in US stock market history. The US is pouring trillions into AI, money ill-spent if China can do the same job for pennies.
That was a blow to Scottish Mortgage too. The FTSE 100 investment trust is a huge play on the US mega-caps and disruptive tech generally. Amazon, Meta Platforms and Nvidia itself number among its top 10 holdings. And Taiwan Semiconductor Manufacturing is in its top 15.
This FTSE 100 stock bounced back
The Scottish Mortgage share price also fell on 27 January, a drop of 5% from 1,059p to 1,004.5p. It could hardly do anything else.
I thought that was modest. Nvidia plunged 17%. I expected further volatility in the days that followed, but was in for another surprise.
The Scottish Mortgage share price bounced straight back, to 1,090p. That’s above its pre-dip price. If anybody had been nippy enough to take advantage of the sell-off, they’d be sitting on a return of 8.5%. If they’d pumped in £10,000, that would be worth £10,850 before charges.
They’d have had to be fast though. I suspect most were sitting back, dazed, wondering what all this might mean. I was.
At The Motley Fool, we think timing the market is a mug’s game. But we’re not against taking advantage of a market dip to buy cut-price stocks. The aim then is to sit back and hold for the long term, rather than carry on trading for short-term gain.
I’d have held on to my Scottish Mortgage shares even if they’d taken a far bigger beating and taken a lot longer to fight back. I’m glad they didn’t though.
Nvidia has further to go
Nvidia is on the up too. It’s also climbed 8.5% since slumping to around $118 on 27 January. But at $128 it’s well below its recent peak of $147.
Sell-offs are to be expected when investing in shares, especially high-growth ones.
Scottish Mortgage crashed by half in 2022, when we saw a far bigger sell-off. Despite that, it’s still up 75% over five years. Over 12 months it’s grown 40%.
The Magnificent Seven US tech stocks surely can’t ride roughshod over their rivals forever. There’s always a surprise out there. With inflation still a menace, and US interest rates likely to stay high, they may struggle to grow from here. Donald Trump’s trade tariffs are a threat too. The Chinese may have more tricks up their sleeve.
Yet I won’t be selling. The trust plays an important role in my portfolio, giving me diversification from FTSE 100 dividend stocks, my main focus. They’re having a moment right now. As ever, diversification is the best defence.
