Blue Whale Growth trims big tech, bets on Nvidia as AI debate heats up markets

Stephen Yiu, who runs the £1.7 billion Blue Whale Growth fund, has largely exited the biggest U.S. technology names, keeping Nvidia as the sole Magnificent Seven holding. He says valuations for many AI‑driven stocks are stretched and that investors should diversify to protect portfolios if the AI rally cools.

Blue Whale Growth has delivered more than 240% since its eight‑year launch, a performance well ahead of broad global averages over the same period. The fund was built to back companies with scalable growth and sensible valuations, and its manager has repeatedly stressed the need to separate hype from earnings potential. Beginning this year, Nvidia accounted for about 8% of assets, with smaller positions in Meta and Microsoft; Alphabet and Amazon were previously part of the mix. Today Nvidia is the only Magnificent Seven holding in the fund (about 9.6%), after Microsoft shares were disposed of in the spring because of concerns about its stock‑market valuation and the return on its large AI investment. "Follow where the AI spending is going, not AI per se," Yiu says, arguing that the beneficiaries of AI hardware and platforms warrant more attention than the broader AI narrative alone.

Nvidia’s standing, in Yiu’s view, rests on a durable cash generation profile. He notes Nvidia is expected to deliver about $200 billion of revenue this year, with roughly half of that revenue contributing to operating costs and a substantial cash cushion on the balance sheet. By comparison, the same framework for Tesla yields far larger revenue but a far thinner margin of cash relative to its size. Yiu contends that Nvidia’s pricing power and product mix position it differently from peers, making the stock a more attractive anchor for a portfolio seeking AI exposure without tethering to valuations he regards as excessive for other Magnificent Seven members. He stresses that his approach is not a blanket rejection of AI or its beneficiaries, but a disciplined tilt toward those that actually translate AI spending into earnings.

Beyond Nvidia, Blue Whale Growth’s holdings include Broadcom, Vertiv, and South Korea’s SK Hynix, which Yiu describes as beneficiaries of AI expenditure rather than headline AI hype. He says the fund’s framework requires distinguishing between companies that spend heavily on AI without translating it into profits and those that capture the spending tailwinds into sustainable earnings growth. He cautions that private AI ventures such as Anthropic, OpenAI and xAI are currently in bubble territory in terms of valuations, and UK investors are less exposed to them through mainstream funds because they are largely private. The emphasis, he adds, is on the balance sheet and cash generation rather than novelty alone.

The broader market debate mirrors Yiu’s careful stance. Major investment houses Fidelity and Invesco have both warned that the AI theme may not deliver the earnings to justify lofty valuations for many AI‑related stocks. Fidelity urges investors to diversify across regions, noting that Europe, Japan and China offer compelling opportunities outside the U.S. market. Invesco advocates US funds that reduce concentration risk by diversifying beyond the top AI stocks, highlighting its S&P 500 Equal Weight Index fund, which allocates an equal stake to each member and rebalances quarterly to avoid overreliance on a handful of names. Both firms argue that the AI narrative should be treated as a theme within a balanced portfolio, not its sole engine.

The public debate about AI’s impact on markets is reflected in investor sentiment as well. A survey of retail investors conducted by eToro found that 53% expect the equity bull market to continue into next year, with the U.S. market seen as leading the way. Yet the same survey showed only 12% of respondents believe AI shares will fall, and more than four in five expect the Magnificent Seven to outperform or at least track the broader market. Analysts say the discrepancy between professional caution and retail optimism underscores the importance of diversification and risk management as market dynamics evolve.

In a related development highlighting the resilience of the financial services ecosystem, a historic UK banking hub is set to open this Thursday in Billericay, Essex—the country’s 200th such hub. The former Lloyds Bank branch on the town’s main high street will offer essential services, including cash access and basic banking, with staff available to assist customers who have concerns or problems. The arrival comes as banks continue to streamline branches, and observers note it could serve as a practical counterbalance to a broader trend toward digital and remote banking, ensuring that local businesses and residents retain access to essential financial services.

The convergence of fund managers’ caution on AI valuations, the push for diversified portfolios, and ongoing improvements in financial services infrastructure illustrates how markets are attempting to navigate a period of rapid technological change. While AI spending remains a powerful driver of profits for certain firms, investors are increasingly factoring in the risk that the sector’s froth could overshoot earnings, particularly for private AI ventures and for those listed in the Magnificent Seven with high valuations. The message from Blue Whale Growth, Fidelity, and Invesco across the investment landscape is clear: embrace the opportunities AI creates, but anchor them to companies with clear earnings visibility and a diversified, prudent approach going into 2026.