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The Scottish Mortgage Investment Trust (LSE: SMT) share price is on fire this year — up 18.4% already!
This strong performance has delivered an impressive 40% one-year return, propelling the FTSE 100 stock past the £11 mark for the first time in three years.
My question as a shareholder is, can it keep pushing on this year?
Why is it up?
Many of the growth-focused trust‘s top holdings are Nasdaq stocks. With the tech-driven index near a record high and interest rates seemingly heading lower, Scottish Mortgage is benefitting nicely.
The portfolio has loads of exposure to artificial intelligence (AI), ranging from chipmakers Nvidia and Taiwan Semiconductor Manufacturing (TSMC) to cloud giant Amazon. Cleary, the trust is in a strong position as the AI revolution rumbles on, with many of its top holdings growing really strongly right now.
Looking beyond the usual US tech giants like Amazon and Nvidia, two European stocks are worth a mention: Spotify and Hermès International.
In Q4, Spotify’s monthly active users grew 12% year on year to 675m, while subscribers increased to 263m. This helped revenue jump 16% to €4.2bn. Last year was also the streaming giant’s first full year of profitability, as it generated over €1.1bn in net profit.
As for Hermès, the ultra-luxury leather goods and fashion house also reported very strong Q4 numbers. Revenue at constant exchange rates soared 17.6% to nearly €4bn, with all geographical areas posting solid growth. Given how most luxury firms are struggling right now, this is impressive.
Of course, both companies could be hit by weaker consumer spending if inflation rises this year. However, for now at least, the two firms are firing on all cylinders and have been top picks by Scottish Mortgage’s managers.
In the past year alone, shares of Spotify and Hermès are up 161% and 32%, respectively.
Below are some other strong portfolio performers worth highlighting:
| 12-month share price return | |
| Sea Ltd | 216% |
| Tempus AI | 122% (since IPO in June 2024) |
| Nvidia | 88% |
| Netflix | 82% |
| Shopify | 66% |
Potential flies in the ointment
The flip side to all this is that the trust’s share price could pull back sharply if interest rates rise in response to a spike in inflation. I don’t envisage this happening, but it can’t be ruled out if a full-on global trade war kicks off.
It’s also worth mentioning that valuations are quite high right now. For example, the forward price-to-earnings (P/E) multiple is 65 for Spotify and 59 for Hermès. This means the firms will have to keep posting solid numbers this year to justify their premium valuations.
Can it go higher?
Looking ahead though, I think the Scottish Mortgage share price may well move even higher this year. Its top holding is SpaceX, the unlisted rocket pioneer that is making incredible progress with its Starlink satellite internet service.
The company is consistently adding satellites to its 7,000 mega-constellation, most with direct-to-cell capabilities. Due to this rapid progress, SpaceX’s $350bn valuation could head higher later this year, boosting the value of Scottish Mortgage’s holding in the process.
The trust is a staple in my portfolio, so I’m not looking to buy any more shares. But even after the recent strong performance, it’s trading at a 9.6% discount to net asset value (NAV). So I think it’s still worth considering for long-term growth investors.
