Nvidia (NASDAQ:NVDA) hasn’t really taken part in the mind-boggling chip stock rally in recent weeks. Speaking as a shareholder, that’s been a tad frustrating.
That said, a 62% share price jump over the past year isn’t anything to grumble about. Nvidia isn’t far below an all-time high of $236.
However, one UK fund manager reckons the stock will head much higher. According to his analysis, Nvidia will top $500 in three years’ time.
If so, that would mean a more than doubling from today’s price. Why’s he so bullish?
All-in on AI
The person I’m talking about is Mark Sheppard, who manages Manchester & London Investment Trust (LSE:MNL). This £402m trust is somewhat under-the-radar because it’s not in the FTSE 100 or FTSE 250 (at least not yet).
Manchester & London’s philosophy is to “invest in elite growth companies aligned with the next decade of progress”. But rather than taking a broad-based view of technological progress like Scottish Mortgage does, it has built an incredibly concentrated portfolio around the global AI revolution.
It has done this for a number of reasons:
- Paradigm shift: while the Industrial Revolution was about the “mechanisation of muscle”, AI is about the “mechanisation of the mind”.
- With approximately $55trn spent annually on human capital today, there’s a huge addressable market for agentic AI to become “a direct substitute for human labour”.
- AI is eating software.
- AI models are getting smarter.
- Token use is accelerating while the cost of training and inference continues to drop.
- Robotics and automation are advancing rapidly.
AI capex to top $1trn
In particular, the trust has gone all-in on the infrastructure layer that supports the data centre buildout. Below, we can see that Nvidia made up a whopping 42% of assets in Q1.
However, the trust pared back this position recently because it fears Nvidia’s Vera Rubin chips could be delayed due to an “over-specification” of the platform’s architecture.
In plain English, there’s a risk that Nvidia tried to make its next-generation products a bit too complex, potentially handing a temporary advantage to some chip rivals.
Despite this risk, Manchester & London remains bullish on the AI chipmaker, which still has a meaty 24% portfolio weighting.
And as mentioned, the manager sees the stock hitting $500 in three years as AI spending by hyperscalers Microsoft, Google, Meta and Amazon rips higher.
Supporting this thesis is Morgan Stanley, which now forecasts hyperscaler spending of $1.1trn in 2027. Goldman Sachs also sees investments in AI agents and related infrastructure topping $1trn in the coming years.
Dividend-paying fund
Of course, longer term, we have no idea about AI hardware demand. There will surely be intense pressure for hyperscalers to cut capital expenditure in future (the spending cannot continue at this pace forever).
Still, Nvidia’s trading at 20 times next year’s forecast earnings, which isn’t exactly expensive. As things stand, the stock looks good value to me.
What about Manchester & London? Is this growth trust worth considering? Well, its high-conviction approach certainly carries concentration risk (though there’s some portfolio hedging through options).
But the trust also offers a 3.9% dividend yield and is trading at a 21% discount to underlying net assets. So it could be worth looking at if you’re wanting discounted exposure to AI and Nvidia in particular.
Should you invest £5,000 in Nvidia right now?
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Ben McPoland has positions in Axon Enterprise, Intuitive Surgical, Nvidia, Scottish Mortgage Investment Trust, and TSMC.
