April 2024
5 minutes

Perspectives on Progress #9

Key points

  • Crucial to AI advances, new holding TSMC dominates the semiconductor industry as an independent foundry
  • Moderna showcases a robust vaccine platform, while Slootman steps aside for a “visionary technologist with a proven track record” at Snowflake
  • Big numbers drive future revenue growth at Stripe – more than $1tn total payment volume – and Spotify, the world’s largest streaming platform

As with any investment, your capital is at risk.



Foundry for the future 

Scottish Mortgage has taken a new position in TSMC, the world’s leading manufacturer of semiconductor chips. It is unique among its peers as the pioneer of the ‘independent foundry model’. Unlike competitors Samsung and Intel, TSMC does not design its own chips; instead, it manufactures chips for its customers – the likes of NVIDIA, Apple and Qualcomm.

This positioning as “everyone’s foundry” means it is agnostic to the type of chip produced. And, because it doesn’t compete with its customers, it crucially builds up a phenomenal level of trust with them through having foresight into their product roadmaps. With over 50 per cent market share globally, TSMC leads the industry in terms of technology and scale, with which few others can compete.

A large part of the investment case of TSMC centres on its positioning to capture future artificial intelligence (AI) opportunities. TSMC is a key enabler of AI applications. AI technology is evolving and needs to be supported by more powerful semiconductor hardware, which requires using the most advanced semiconductor process technologies.

Against this backdrop, the value of TSMC’s technology position is increasing, and it is well-positioned to capture a significant portion of the future AI chip market. No matter what drives further improvements in semiconductors, it will improve TSMC’s value proposition without worrying about which technology is responsible for the gain: TSMC is essentially the operator of other people’s technology.

TSMC is an extraordinary business with all the attributes we seek in an exceptional growth company.



Growing the internet's GDP

One of our largest private holdings, Stripe, is revolutionising ecommerce by making it easier for businesses to bring useful products and services to people worldwide. It builds financial infrastructure for companies of all sizes, from hours-old startups to complex global businesses.

2023 was a milestone year. Stripe now has more than 100 companies processing more than $1bn per year in its large enterprise segment. Altogether, it surpassed $1tn in total payment volume (TPV) for the first time, up 25 per cent from 2022. For context, US ecommerce grew by just 7.6 per cent. At $1tn TPV, the output of businesses that run on Stripe is 1 per cent of global GDP.

Financially robust, Stripe was strongly cash flow positive in 2023 and expects the same in 2024.

Will it IPO soon? Co-founder John Collinson is in no rush, saying, “businesses which are profitable have many, many more options than businesses which are dependent on outside capital.”

In an uncertain and tighter capital environment, its financial strength, superior products and services, and the enduring shift of commerce online, should continue to create powerful tailwinds for Stripe.

Phone with Stripe logo, colourful background


Hitting the right notes 

Spotify was the poster child for companies in 2023, pivoting its business from a philosophy centred on “growth at all costs” to one of “growth with cost control”. In Daniel Ek’s own words, 2023 was an “incredible but different” year for the business. Not only did it finish the year as the world’s largest streaming group with 602 million users and 30 per cent global market share, but it did this with an increased focus on efficiency and monetisation which in turn drove profitability. Its efforts were rewarded by the market with the share price rising over 120 per cent during the year.

The much-debated topic of ‘podcasts’ remains front and centre of shareholders’ minds, but Spotify has said it expects to get that part of the business to break even in 2024.

The company has addressed some of the challenges inherent in that division by doubling down on successful podcast partnerships and exiting underperforming ones. This should drive improved leverage and lay the groundwork for success. With good momentum behind both the music and podcast business, the development of an AI playlist function (users can create curated track lists based on text descriptions) and the potential to expand into new verticals, Spotify has various levers to pull to drive revenue growth this year and beyond.


Positive progress for vaccine platform

At Moderna's fifth Annual Vaccines Day, the innovative biotech company showcased its robust vaccine platform, heralding a new era in combating infectious diseases and cancer. It has multiple vaccines advancing to late-stage trials. These include promising candidates for Epstein-Barr virus (EBV), one of the most common human viruses, and shingles and norovirus. In other words, Moderna is on the brink of breakthroughs that could save millions of lives annually.

The company also revealed positive results from its next-generation Covid-19 vaccine study, underscoring its rapid innovation pace. Moderna suggested its total addressable market to be $52bn for infectious diseases vaccines alone. With its success rates in clinical trials notably outpacing industry averages (two-times success rate in both phase 1 and 2, and 80 per cent versus 60 per cent in phase 3), this indicates a transformative impact on global health.

Despite a lukewarm market response, the pipeline's potential, including a much-anticipated RSV vaccine – RSV affects an estimated 30 million people annually and is a leading cause of respiratory tract infections in young children – and a Flu and Covid-19 combo, positions Moderna as a pivotal player in the future of vaccines.

Stop Press: In early April, Moderna also reported positive results from its cancer vaccine trial in combination with Merck's Keytruda drug to treat those with head and neck cancer. 

To hear directly from Moderna's founder, Stéphane Bancel, on the company's progress, listen to the Invest in Progress podcast.

Listen on Spotify →

Listen on Apple Podcasts →


Slootman stepping down

Frank Slootman – the charismatic CEO of Snowflake – announced his retirement in a move that took the market by surprise. Snowflake is widely hailed as one of the companies at the forefront of the AI revolution, providing solutions for enterprises to store and analyse their data in the cloud.

Stepping into Slootman’s shoes is Sridhar Ramaswamy, who spent 15 years at Google heading up its advertising business. While Slootman’s departure may have come as a surprise, we have been saying for some time that, with the dawn of a new technological paradigm in AI, there is a dichotomy between the founders and CEOs wrestling with this new technology and the technical founders who have a deep understanding of it.

Slootman himself alluded to this when he commented, “with the onslaught of generative AI, Snowflake needs hard-driving technologists to navigate the challenges the new world represents”. He has endorsed the appointment of Ramaswamy saying: “he is a visionary technologist with a proven track record of running and scaling successful businesses.” Slootman will continue as Chairman of Snowflake’s Board, and we look forward to supporting the company as it embarks on a new chapter. 

A phone showing the Snowflake logo. Phone laying on top of a laptop keyboard.

Annual Past Performance To 31 March each year (net%)

  2020 2021 2022 2023 2024
Scottish Mortgage Investment Trust plc 12.7 99.0 -9.5 -33.6 32.5

Source: Morningstar, share price, total return, sterling.

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