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Thanks to the explosion in artificial intelligence (AI) hype, US tech giants like Nvidia and Meta Platforms have soared. The boost has helped thousands of US investors enjoy a huge influx of capital gains.
But what if that boom could also become the foundation of a second income stream? Well, it’s possible — albeit with a hefty dose of caution.
While picking the next Nvidia may seem the obvious route, high valuations and hype cycles mean there’s risk. For British investors, an easier and more diversified path may be found in an investment trust like Scottish Mortgage (LSE: SMT). This FTSE 100-listed fund offers exposure to leading AI-related stocks in the US and beyond.
Why Scottish Mortgage is a shortcut to AI exposure
Managed by Baillie Gifford, Scottish Mortgage aims to “own the world’s most exceptional growth companies”.
Its portfolio includes publicly traded AI leaders such as Nvidia, ASML and Amazon, plus private unicorns including SpaceX and ByteDance — many of which are AI software innovators.
To balance out the volatility commonly found in high-growth tech stocks, it also includes a diversified mix of healthcare, finance and retail stocks.
In this way, investors can benefit from rising AI trends while enjoying steady and reliable growth in the long term.
Steady growth… with some bumps
Over the past decade, Scottish Mortgage shares are up 315%, representing annualised returns of 15.3% a year. That’s well ahead of the UK market average. And with them now trading at just over 1,080p, they’re at a 9% discount to net asset value (NAV). That suggests the market hasn’t fully priced in the fund’s potential.
The net asset growth for the year to March delivered an impressive 11.2% NAV return, outperforming the FTSE All‑World index at 5.5%. The fund also paid a modest semi‑annual dividend, totalling 4.38 pence per share, up 3.3% year on year.
Despite limited income yields (currently around 0.41%), it benefits from a carefully-managed allocation across unlisted and listed growth stocks. This means investors may capture capital gains and dividend increases over time — a potent combination for a second income stream if held long enough.
But it hasn’t all been plain sailing. Shareholders like myself will know all too well about the volatile price swings that the fund’s experienced in the past. These are particularly bad during times of economic downturns, such as the 2022 bear market.
So while it exhibits sustainable growth over long periods, investors may need to stomach some short-term dips along the way. The threat of geopolitical instability and US trade tariffs continues to pose further risks to the fund’s performance.
Simplified link to AI
Investing in the AI theme offers long-term potential, but few UK investors can realistically shop global IPO pipelines or pick early-stage unicorns. That’s where Scottish Mortgage Investment Trust shines — by blending public and private holdings and allowing exposure through a single UK-listed vehicle.
While performance in recent years has been volatile, the long-term potential of AI tech combined with global diversification makes it a plausible one to consider for a portfolio aimed at earning a second income.
