As with any investment, your capital is at risk.
SpaceX’s second Starship launch met its primary objective – successfully separating from the first stage Super Heavy booster without any engine failures. The flight lasted twice as long as the attempt in April – eight minutes instead of four. All 33 Raptor engines worked, whereas six failed during the previous attempt. The booster exploded post-separation. However, we believe this is what rocket development should look like. Intentionally pushing systems to their limits is where we learn the most, and other companies simply don’t have the business model or culture to support this rapid approach to innovation at scale.
SpaceX will have collected a trove of data from this second launch test and has multiple rockets ready to follow up with a third attempt rumoured to be before the end of the year. Starship will likely play a critical role in expanding the Starlink satellite constellation, given the vehicle’s enormous payload capacity.
First bought for Scottish Mortgage in March 2011, we decided to exit our position in Illumina – the company that has been at the forefront of the gene sequencing revolution. Illumina has played a key role in advancing the understanding of human biology and disease treatment. But we feel less confident that it will retain its lead as other players increasingly challenge its dominant position. In conjunction with the problems and distractions related to the GRAIL acquisition, management, board disputes and upheavals, the growing competition led us to divest our remaining stake in the company.
Amid a lot of noise around a funding slowdown in the private markets and companies having their valuations slashed, Databricks appears to be bucking the trend. It raised circa $500m at a $43bn valuation in its Series I funding round. Databricks last raised $1.6 billion in August of 2021, at which time the estimated value after receiving the funding was $38 billion. Seeing the company add $5bn to its price tag proves that wider ‘industry’ trends do not affect everyone equally – private companies are not a ‘one size fits all’. Databricks sits at the intersection of two exciting trends – the data economy and artificial intelligence. We are estimated to generate more data in the next three years than the last 30 combined, and Databricks aims to make managing and processing data easy. Most data held in enterprises is ‘unstructured’; thus, it is hard to extract meaning unless you have a unique algorithm or expertise in managing this type of data. Given that most corporates do not have armies of artificial intelligence (AI) experts and data scientists, Databricks aims to help companies that are not ‘software first’ reap the benefits of AI by having one simple, unified data platform.
During the Meta earnings call in July of this year, founder and CEO Mark Zuckerburg said that Meta was “riding two technological waves…AI in the short term, the metaverse in the longer term”. Scottish Mortgage recently initiated a new position in Meta as we think it could be one of the companies set to be a big beneficiary of generative AI. With 3.7 billion monthly active users, most are familiar with Meta platforms. The reach of the ‘Family of Four’ (Facebook Blue, Instagram, Messenger and WhatsApp) makes them an advertiser’s dream, given that these platforms touch 70 per cent of the connected population outside China.
However, assets such as WhatsApp and Messenger have historically been under-monetised. We think utilising AI on these platforms will improve advertising opportunities and facilitate better monetisation through increased user connections. For example, sending people who click on ads directly into conversations with businesses in Messenger.
These potential growth revenues, plus the opportunity for margin uplift given the change of resourcing structures internally, lead us to believe that Meta is well-placed to sit at the heart of the advertising infrastructure in the digital world.
A sustainability aspiration: a battery with no lithium, cobalt or nickel. Northvolt has made a breakthrough in the battery technology used for energy storage. Using sodium-ion technology, it thinks this is the first battery product ever to be free of critical raw materials – “a fundamental breakthrough,” according to the company. This option could reduce dependency on scarce raw materials from Asia while also reducing exposure to the volatility in prices of these materials. Sodium-ion batteries are considered a cheaper and safer alternative to lithium-ion batteries. They work better at high and low temperatures and, crucially, are more sustainable. Peter Carlsson, CEO and co-founder of Northvolt, commented, “The world has put high hopes on sodium-ion, and I’m pleased to say that we’ve developed a technology that will enable its widespread deployment to accelerate the energy transition”.
Unlisted investments such as private companies, in which the Trust has a significant investment, can increase risk. These assets may be more difficult to sell, so changes in their prices may be greater.
Claire Shaw is a portfolio director and plays a prominent role in servicing Scottish Mortgage’s UK shareholder base. Before joining in 2019, she spent over a decade as a fund manager with a focus on managing European equity portfolios for a global client base. With a background in analysing companies and communicating investment ideas, Claire is also responsible for creating engaging content that makes the Scottish Mortgage portfolio accessible to all its shareholders. Beyond that, she works closely with the managers, meeting with portfolio companies and conducting in-depth portfolio discussions with shareholders.
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