Christopher
Johnson:
Welcome
to
Morningstar.
My
name
is
Christopher
Johnson,
and
today,
I’m
joined
in
the
studio
by
Stephen
Yiu,
the
Managing
Partner
and
CIO
of
the
Blue
Whale
Growth
Fund.
Steven,
thank
you
so
much
for
being
here
with
me.
So,
my
first
question
to
you
is
about
Nvidia
(NVDA).
it
is
the
top
holding
of
the
fund.
An
investor
from
Liontrust
was
recently
interviewed
on
CNBC
and
she
argued
that,
despite
Nvidia’s
high
valuation,
it
is
currently
undervalued.
Do
you
agree
with
this
statement?
Stephen
Yiu:
Yes,
we
do
agree.
It
depends
on
which
time
period
you’re
looking
at
Nvidia.
So,
on
a
one-year
P/E
ratio
basis,
if
you
follow
them
using
the
market
consensus,
it’s
actually
trading
at
a
similar
valuation
to
Microsoft
(MSFT)
and
Amazon
(AMZN).
So
of
course,
then
if
you
believe
that
Amazon
and
Microsoft
are
overvalued
at
over
30
times
earnings,
and
so
is
Nvidia.
But
if
you
believe
that
30
times
earnings
for
those
businesses
are
okay,
then
Nvidia
is
not
overvalued.
But
of
course,
over
the
medium
term,
in
the
next
three
to
five
years,
we
do
believe
that
Nvidia
is
going
to
make
a
lot
more
money
in
terms
of
selling
more
of
the
GPU
in
revenue
terms
and
just
because
the
business
in
itself
is
very
high
margin
in
terms
of
operation,
so
they’re
going
to
deliver
a
lot
of
free
cash
flow
back
to
shareholders.
And
to
our
mind,
I
mean,
we
have
been
invested
in
Nvidia
since
2021
and
we
have
increased
our
position
quite
a
lot
in
2022
when
the
share
price
came
back
down
a
lot.
And
we
still
maintain
a
very
large
position –
just
short
of
10%.
So,
to
our
mind,
we
have
no
doubts
that
Nvidia
is
going
to
become
the
biggest
company
in
the
world
in
time,
surpassing
both
Apple
and
Microsoft,
which
is
not
a
long
way
to
go.
But
of
course,
from
an
investment
manager
perspective,
that
if
Nvidia
is
going
to
do
that
within
the
next
12
months
or
so,
I
think
we
are
very
happy
with
that.
But
if
Nvidia
is
going
to
take
another
three
years
to
do
that,
we
will
be
happy
too.
But
then
we
might
have
a
smaller
position.
So,
it’s
one
of
those
things
that
we
want
to
optimise
the
performance
of
the
fund
in
time.
But
as
far
as
the
prospect
of
Nvidia
is
concerned,
we
have
no
issue
with
that.
CJ:
At
the
Morningstar
Investment
Conference
in
London,
there
was
a
panel
discussion
about
AI
and
people
were
talking
about
the
ramifications
due
to
it
(maybe)
using
the
intellectual
property
from
other
content
out
there.
Do
you
think
this
is
a
risk
that
maybe
investors
are
not
seeing
with
AI?
SY:
This
is
the
direction
of
travel.
So,
there’s
going
to
be
more
regulation
coming
in
and
the
regulators
are
coming
to
challenge
some
of
this.
I
think
the
one
company
that’s
slightly
questionable
today
is
OpenAI
because
they
do
not
disclose
their
source,
how
they
come
to
do
the
training.
But
if
you
look
at,
for
example,
Adobe
Firefly,
which
is
a
competing
product
to
Midjourney
–
Midjourney
doesn’t
disclose
their
source
as
well
–
if
you
were
a
creative
professional
to
use
Adobe
Firefly
rather
than
Midjourney
to
generate
an
image
using
the
GPT
capability,
they
guarantee
you
that
it’s
copyrighted
in
a
way
that
there’s
no
issue.
They
would
be
paying
whoever
generated
the
images
or
the
video
that
have
fed
onto
the
AI
to
do
the
learning
and
then
give
you
the
output.
So
what
Adobe
is
doing
is
to
assure
the
enterprise
customers
that
you’re
not
going
to
just
generate
some
images
and
then
you
suddenly
get
a
lawsuit.
So
hence,
for
the
very
large
enterprise
customer,
they
would
be
still
using
Adobe
Firefly
rather
than
Midjourney
for
maybe
just
an
Instagrammer.
On
the
other
hand,
if
you
look
at
maybe
the
music
industry,
I
think
last
year
there
was
some
music
that’s
been
generated
by
AI
using
like
an
existing
artist
archive
and
it
was
very
popular.
But
of
course,
what
has
happened
is
the
record
companies,
the
labels,
have
then
said
to
the
likes
of
Spotify
(SPOT)
or
Amazon
Music
that
you
need
to
take
this
down
because
it’s
copyrighted
–
which
they
did.
So,
I
think
the
direction
of
travel
is
like
you
would
continue
to
see
this
two
way
of
coming
up
with
the
output
on
the
back
of
Generative
AI,
but
I
think
for
the
more
sophisticated
market
like
the
enterprises,
like
if
you’re
a
big
company,
you
would
rather
not
take
the
risk.
So,
you
need
to
basically
do
what
you
need
to
do
to
satisfy
the
current
regulations.
CJ:
At
the
end
of
December
2023,
according
to
Morningstar
data,
you
sold
780,000
shares
in
Universal
Music
Group
(UMG),
reducing
your
position.
What
led
to
this
decision?
And
did
it
have
anything
to
do
with
the
months-long
licensing
fee
between
the
group
and
TikTok?
SY:
So
not
so
much
about
TikTok.
So
basically,
we
invested
into
UMG
about
two
years
ago
and
we
actually
recently
exited
our
position
completely.
So,
we
sold
out
from
the
shares
completely
only
on
the
back
of
two
things.
One
was
on
valuation
grounds.
It’s
done
very
well
for
us.
I
think
the
thesis
that
we
had
at
the
time
was
that
the
group
was
undervalued
for
how
well
they
monetised
the
music,
partnering
with
Spotify,
Amazon,
Instagram
and
some
others,
of
course,
TikTok
was
also
one
of
the
players.
So
that
has
played
out
quite
well.
We
have
no
concern
about
that
part
of
the
market.
We
had
not
so
much
concern
about
AI
music
being
generated
using
the
existing
artists
or
the
kind
of
the
label
archive
because
they
have
very
strong
relationship
with
the
distributor,
which
are
Spotify,
Amazon
Music,
so
they
can
force
them
not
to
embrace
that.
What
is
slightly
questionable
in
terms
of
the
AI
threat
to
the
music
industry?
We
don’t
know
whether
it’s
going
to
materialise
or
not.
It’s
a
speculation
based
on
our
take
today.
It’s
how
we
come
to
know
about
a
pop
star
like
Taylor
Swift
or
some
others
is
that
the
record
label
have
spent
a
lot
of
money
to
build
up
that
sort
of
character
or
the
artist
in
itself
and
of
course
then
they
do
a
lot
of
concerts.
I
mean,
it’s
exceptional
artists
and
other
stuff.
And
because
in
terms
of
how
we
receive
the
kind
of
the
music
and
all
that,
it’s
also
quite
controlled
in
a
way
that
okay
if
that
got
recommended
to
you,
if
they
have
more
money
to
spend
doing
tours
and
you
come
to
learn
about
them,
if
they
have
money
to
spend
on
Instagram,
then
you
come
to
know
about
them,
et
cetera.
But
in
time
what
we
don’t
know
is
whether
AI
is
going
to
change
that
in
terms
of
how
we
receive
music,
not
in
terms
of
the
generation
of
music,
is
whether
then
suddenly
maybe
the
big
star,
the
big
pop
star
or
artists
are
no
longer
for
everyone,
that
maybe
it’s
the
smaller
artists
that
doesn’t
even
have
a
record
label
to
back
them
up,
that
because
of
the
recommendation
system
that
they
get
to
know
a
lot
more
about
you,
let’s
say
Spotify,
know
about
what
you
like
and
then
they
start
recommending
new
stuff
that
are
not
the
kind
of
the
artists
being
backed
by
the
record
labels.
So
then
whether
that
would
change
the
pattern
in
terms
of
the
business
model
of
the
record
label
because
at
the
moment
of
course
they
have
all
the
archive
which
they
are
making
a
lot
of
money
from
but
then
we’ll
talk
about
what’s
going
to
happen
in
the
next
20
years,
are
they
going
to
have
the
next
Taylor
Swift
or
is
this
Taylor
Swift
going
to
be
coming
from
somewhere
else
that’s
not
backed
by
a
record
label?
So
that
is
just
a
question
mark
that
we
are
debating
but
because
of
valuation
ground
it’s
delivered
what
we
expected
them
to
do
and
then
we’ve
made
quite
a
lot
of
money
on
the
back
of
that.
So,
we
exited
the
position.
CJ:
According
to
Morningstar
data
your
fund
returned
29.5%
over
the
three
years
to
May
2024
versus
the
Morningstar
Global
Growth
Index
which
returned
13.36%.
So,
what
do
you
think
has
been
the
key
to
the
fund’s
outperformance
apart
from
Nvidia?
SY:
In
Q4
2022,
we
initiated
our
first
and
only
energy
company
called
Canadian
Natural
Resources,
which
is
currently
in
the
top
10
[of
our
portfolio].
That
company
actually
has
gone
up
quite
a
lot;
about
50%
return
between
Q4
2022
until
now,
so
it’s
done
very
well.
That
is
on
the
back
of
our
view
that
oil
prices
are
going
to
be
well
supported
at
a
higher
level
than
before
just
on
the
back
of
the
political
uncertainty,
geopolitical
uncertainty
in
the
Middle
East
in
particular.
And
at
the
same
time,
if
you
look
at
like
Mastercard
(MA)
and
Visa
(V),
you
would
think,
okay,
these
two
companies
sound
quite
boring,
everyone
knows
about
these
companies,
but
we
actually
would
categorise
these
two
companies
as
the
new
regime
beneficiaries,
so
they’re
going
to
benefit
more
on
a
high
level
of
inflation.
How
are
they
going
to
do
that?
It’s
just
on
the
back
of
them
charging
us
a
fee
on
our
nominal
spending,
so
not
on
our
discretionary
spending.
So,
if
you
go
to
supermarkets,
the
inflation
at
5%
or
10%
before,
you
just
end
up
paying
more
using
your
debit
card
or
credit
card.
And
then
if
you
think
about
going
back
to
the
pre-pandemic
period,
the
inflation
number
for
consumer
spending
is
1%
to
2%,
going
forward
it’s
likely
to
be
3%
to
4%,
so
they
just
have
a
natural
tailwind
of
making
more
money
on
top
of
the
digital
transformation
from
cash
to
contactless
to
digital.
And
of
course,
these
companies
are
very
high-margin
businesses.
So,
any
way
of
making
more
money
on
the
top-line
would
then
get
translated
onto
the
bottom-line
because
they
are
operationally
geared
being
very
tech
savvy.
At
the
same
time,
one
area
that
we
haven’t
talked
about,
which
is
very
exciting
for
us
which
is
semiconductor
equipment
companies.
So,
currently
within
our
top
10
we
have
Applied
Materials
(AMAT)
and
Lam
Research
(LRCX),
and
last
year
we
had
ASML,
which
we
exited
on
valuation
grounds,
but
in
terms
of
the
end-market
dynamics
will
be
quite
similar.
So,
why
is
it
so
exciting
about
these
companies?
And
we
actually
categorise
the
semiconductor
equipment
companies
under
the
new
regime
beneficiaries,
so
not
within
AI
because
they
don’t
actually
do
a
lot
in
AI.
It’s
on
the
back
of
the
geopolitical
uncertainties
that
with
the
CHIPS
Act
in
the
US,
with
a
similar
mandate
in
EU,
there
are
over
$100
billion
worth
of
tech
subsidy
today
to
incentivise
companies
like
TSMC
(TSMC),
Samsung
(SMSN)
and
Intel
(INTC)
to
build
new
foundries
in
the
Western
world,
because
currently,
Taiwan
controls
over
90%
of
the
high-end
semiconductors
production.
And
if
tomorrow,
let’s
say,
Taiwan
is
no
longer
autonomous,
let’s
say,
somehow
it
becomes
part
of
China
and
then
China
ended
up
weaponising
semiconductors,
I
mean
we
will
be
in
trouble,
right?
So,
the
Western
government
has
recognised
that
two
years
ago
back
in
2022
that
we
need
to
have
more
foundries
being
built
so
that
we
can
produce
the
chips
that
we
need
ourselves.
And
then,
if
you
look
at
the
numbers
today,
there’s
over
$300
billion
to
$400
billion
worth
of
commitment
to
build
new
foundries
in
the
US,
in
Ireland,
in
Germany,
in
France,
in
South
Korea,
in
Japan
so
then
if
you’re
selling
the
mission-critical
equipment
into
this
foundry
like
Lam
Research,
Applied
Materials
or
even
ASML
(ASML),
then
you
ended
up
selling
a
lot
more
of
your
equipment
into
these
foundries.
So,
this
is
what
is
very
exciting
that
like
you
would
think
typically
the
sector
in
itself
is
quite
cyclical
because
the
end
markets
are
consumer-facing,
PCs,
smartphone
or
autos.
But
because
of
the
tailwind
they’re
experiencing
on
the
back
of
the
government
backing
this
dramatically
because
we
think
this
is
the
most
important
reshoring
in
terms
of
silicon
sovereignty
like
we
need
to
be
sovereign
in
terms
of
the
access
to
silicon,
then
the
government
is
putting
the
full
force
behind
the
scene.
And
of
course,
when
you
talk
about
building
a
foundry,
I
mean
you’re
talking
about
billions
of
dollars,
and
it
would
take
at
least
three
to
five
years
in
order
for
a
foundry
to
be
completed.
So,
then
we’re
actually
very
excited
about
this
area
that
we
think
is
going
to
benefit
on
the
back
of
this
new
regime.
CJ:
Stephen,
thank
you
so
much
for
taking
the
time
to
speak
to
me.
SY:
Thank
you.
CJ:
This
is
Christopher
Johnson
for
Morningstar
UK.
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