Baillie Gifford & Co., a firm renowned for its investments in high-growth technology companies, is diversifying its portfolio by focusing on “boring” US infrastructure companies. This strategic shift is driven by the anticipation of a significant construction boom following decades of underinvestment in the sector.
Partner Stuart Dunbar, speaking in Tokyo, highlighted the firm’s belief in a substantial building surge across the US, UK, and other regions. While Baillie Gifford maintains its interest in select large US tech stocks, it has adopted an underweight position on many due to inflated valuations.
Dunbar emphasized the dire state of infrastructure in parts of Europe and the US, citing decades of neglect leading to critical failures. He pointed to the literal crumbling of bridges as evidence of this urgent need for investment. This presents an unexpected growth opportunity in sectors like building aggregates and drainage systems, with companies such as Advanced Drainage Systems Inc. and Stella-Jones Inc. emerging as attractive investment prospects.
Historically, Baillie Gifford has been recognized for its significant investments in tech giants like Tesla Inc., Meta Platforms Inc., and Amazon.com Inc. However, despite a positive long-term outlook for these companies, the firm has taken an unusual stance by underweighting most US tech stocks due to current valuation concerns.
Investing in essential infrastructure components like water pipes and utility poles aligns with Baillie Gifford’s growth stock strategy. Dunbar reiterated the firm’s commitment to identifying companies with the potential for rapid and profitable growth, regardless of sector.
The firm expressed concerns about Nvidia Corp.’s high valuation, contingent on sustained growth. Trading at 34 times expected earnings, significantly higher than the S&P 500 index’s 23 times, Nvidia’s long-term sustainability hinges on demonstrating tangible value derived from AI applications. While acknowledging a continued holding in Nvidia and maintaining a positive outlook, Dunbar revealed that Baillie Gifford has been strategically reducing its position.
A more cautious approach is being taken with Google’s parent company, Alphabet Inc., due to concerns that advancements in AI could potentially disrupt Google’s core business. Conversely, Baillie Gifford remains optimistic about Amazon, citing its robust research and development spending as a key driver in maintaining a competitive edge.
Meta’s extensive data resources, which can be leveraged for AI development, and Tesla’s “incredible robotics and energy businesses” also garnered positive remarks. However, Dunbar acknowledged that competitor BYD Co. produces superior vehicles at a significantly lower cost.
Despite challenges like potential tariffs from the US and Europe, Baillie Gifford anticipates a resurgence in Chinese tech stocks, including BYD. The firm also identifies digital banking as a significant trend, with investments in fintech companies such as Nu Holdings Ltd. in Brazil and Adyen NV in the Netherlands.
