Scottish Mortgage (LSE: SMT) shares are having a great run in the meanwhile. Yr thus far, they’re up about 15% versus a achieve of 8% for the FTSE 100 index.

My prediction (and naturally, it’s simply my opinion) is that this yr, returns from the growth-focused funding belief will beat these from the Footsie. Right here’s my funding thesis.

A play on AI

One cause I’m bullish on Scottish Mortgage proper now could be that the belief has loads of publicity to synthetic intelligence (AI) shares. I anticipate this space of the inventory market to proceed performing properly in 2025 as AI applied sciences get pleasure from extra adoption.

What I like about Scottish Mortgage is that it has publicity to several types of AI shares. Not solely does it personal associated infrastructure shares reminiscent of Nvidia, ASML, and Taiwan Semiconductor Manufacturing Firm (all concerned in AI chips), nevertheless it additionally owns software program/utility shares reminiscent of Amazon, Meta Platforms, and Snowflake.

That is essential. Over the past two years, the AI story has largely been in regards to the buildout. That’s why shares like Nvidia have performed so properly. Now nonetheless, we’re getting into a brand new section the place corporations are rolling out AI options for his or her clients. On this section, I feel shares like Amazon and Snowflake might do properly.

It’s price noting that the FTSE 100 doesn’t provide a variety of publicity to AI. There are a number of Footsie corporations which are rolling out options at present, reminiscent of London Inventory Alternate Group, Sage, and RELX however, typically, AI’s not a serious theme for this index.

Prime holdings might do properly

One more reason I’m bullish on Scottish Mortgage is that I consider a number of of its high holdings have the potential to ship substantial features in 2025.

One such holding is Amazon, which on the finish of January was 6.3% of the portfolio. It at present trades for round $230. Nevertheless, in the previous couple of weeks, many brokers have raised their price targets to between $265 and $290. That suggests potential features of round 15-25% from right here.

One other is Nvidia (4.1% of the portfolio). Regardless that this firm is extra concerned within the AI buildout, I feel it has the potential to outperform in 2025. Presently, it trades on a forward-looking price-to-earnings (P/E) ratio of simply 30. That’s a low valuation for this firm.

After all, there are shares within the FTSE 100 that might carry out properly too. A couple of of the highest 10 constitutions, reminiscent of GSK and HSBC Holdings, look low cost proper now. I personally have extra conviction within the likes of Amazon and Nvidia nonetheless. In my opinion, these corporations have stronger long-term development prospects.

I may very well be improper

I’ll level out that there are dangers that might derail my bullish funding thesis. One is a shift in sentiment in the direction of synthetic intelligence and consequently AI shares. This might see Scottish Mortgage shares underperform the FTSE 100.

One other is an surprising enhance in rates of interest. This might result in weak spot for tech shares.

General, I’m nonetheless fairly optimistic about Scottish Mortgage’s prospects. I consider the belief is price contemplating (as a higher-risk long-term development funding) for a portfolio at present.