The Edinburgh-based company is today sitting on many billions of profit after first investing in the rocket pioneer back in 2018. This follows previous smash-hit returns from Tesla and Nvidia.

Needless to say, it’s worth keeping an eye on what Baillie Gifford has been buying lately. That’s why I was intrigued to see the asset manager recently loading up on a growth stock that’s little talked about today.

High switching costs

The share in question is Samsara (NYSE:IOT). According to Baillie Gifford’s latest 13F regulatory filing, it scooped up some 9.86m shares in Q1. This made the UK investor the largest institutional shareholder in Samsara.

So, what does the company do? Samsara is an Internet of Things company helping businesses manage their physical operations through a cloud-based platform that collects data from connected vehicles, cameras, trailers and equipment.

This enables vehicle fleet managers to track fuel consumption, optimise routes, and schedule maintenance (or not). Samsara’s AI-powered software can also detect risky driving like mobile phone use, tailgating, or signs of driver fatigue.

In turn, improved driver behaviour is reducing liability claims for customers. This tangible return on investment is helping the firm attract notable blue-chips, including car rental giant Hertz and Sainsbury’s (monitoring its delivery vans).

Now, what I like here is that there are high switching costs because the physical hardware (sensors and cameras) is blended with cloud software. Both are woven into customers’ day-to-day operations, including some of America’s largest waste management companies.  

In this sense, Samsara reminds me of Axon Enterprise, another founder-led growth firm that uses hardware as a gateway to capture further software offerings over time.

Like Axon, Samsara strikes me as having a highly defensible business model based around a hardware-software ecosystem and big datasets. This is crucial in today’s age of rapidly advancing AI. 

We have a unique defensible data advantage. By instrumenting physical assets with IoT hardware, we’ve created a large, growing proprietary data asset that cannot be easily replicated…The AI transition from bits to atoms is under way. Samsara is at the centre of it.
CFO Dominic Phillips.

How fast is it growing?

The company has been — and is set to continue — growing quickly. In Q1, annual recurring revenue reached almost $2bn, a 30% year-on-year increase in constant currency.

Crucially, Samsara has been profitable for three straight quarters, and is guiding for a profitable full year.

Meanwhile, its new Ground Intelligence product leverages trillions of data points from vehicles to flag potholes, which account for roughly $3bn in US vehicle damages every year. So the customer base is widening.

Another under-the-radar gem?

In my eyes, the biggest dampener here is a forward price-to-earnings ratio of 46. If growth slows unexpectedly, the stock could nosedive, especially as Samsara doesn’t have a long track record of profitability (which adds risk).

Weighting things up though, I think Samsara has all the hallmarks of a quality growth stock. It could indeed be a hidden gem in the physical AI space.

Down 30% since December, I think it’s a dip-buying opportunity worth digging into at $31 per share.

Should you invest £5,000 in Samsara right now?

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And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Samsara made the list?

Ben McPoland owns shares in Axon Enterprise and Nvidia.

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