The $70b Super Fund and ACC’s $47b fund make opposing bets on Nvidia

Surveys by the likes of Datacom and Forsyth Barr have found NZ slow to latch on to the AI boom in business. And Government departments are at sixes and sevens with a new Technology Minister still mulling how to approach the promise and peril of the fast-emerging tech. In day-to-day life, we’re mostly missing out.

But there is one way New Zealand is cashing in on the AI boom: The NZ Super Fund’s huge US tech stock holdings, which have catapulted in value (although our second huge sovereign fund took a different tack - more on which below).

Even if you don’t particularly follow stock markets, or tech, you’ve probably seen the wild bull run that Nvidia has been on a wild surge lately, making it one of the most valuable firms on the planet.

The maker of chips used to train artificial intelligence systems yesterday declared AI had reached a “tipping point” and a “whole new industry” as its quarterly revenue jumped 265 per cent to US$22.1 billion and its net profit tripled to US$16.8b.

Nvidia's Silicon Valley campus, in Santa Clara, California. Photo / AP

Nvidia shares have roughly doubled in the past year and its stock took yet another leap today.

In late Nasdaq trading, Nvidia was up 16.4 per cent - a one-day record in valuation increase helped to lift the entire index by a staggering 2.96 per cent to close at an all-time high.

The Silicon Valley-based Nvidia is now worth around US$1.92 trillion - making it the third most valuable listed company after Microsoft (US$3.06t) and Apple (US$2.85t) - having recently passed Amazon (US$1.81t), Google parent Alphabet (US$1.79t). The so-called “Magnificent Seven” is rounded out by Facebook parent Meta (US$1.25t) and Tesla (US$617.5b).

So what does that mean for Kiwis?

The NZ Super Fund’s latest disclosure (December 31 last year) had it holding 771,114 Nvidia shares. On today’s closing price, that block would be worth around US$605m ($991m), or roughly five times its value in the fund’s June 2021 disclosure.

The Super Fund also has major holdings in the recent of the Magnificient Seven: Apple (with shares worth $1.4b), OpenAI backer Microsoft ($1.2b), Alphabet ($305m ), Tesla ($338m), Meta ($330m) and Amazon ($245m). The Magnificence Seven’s prominence for the Super Fund’s offshore equities is not so much a function of making a bet on AI as its external managers simply following the US indexes, which Big Tech has come to dominate.

$47b ACC fund makes different Nvidia bet

While the $70b Super Fund is NZ’s largest, highest profile sovereign investment vehicle, there’s also a second: ACC’s fund, worth some $47b.

And the man managing ACC’s investments recently told the Herald he’s sceptical of US technology stocks like Tesla and Nvidia that are being fuelled by artificial intelligence hype.

“The US market’s been driven by a few large tech stocks at the top in recent times. There’s a lot of optimism among investors that these stocks are leading their field and that they’re dominant and they’ll earn returns accordingly. And that may work out to be the case,” ACC chief investment officer Paul Dyer told Markets with Madison.

“But history tells us that where there’s technological change, it’s hard to capture it all. The first-movers “aren’t necessarily the long-term winners,” Dyer said.

“We look back to the previous tech bubble 20 years ago and that pattern’s very prevalent. It may or may not be a bubble [today] ... We are quite a conservative investor.”

Statutory requirements to take less risk mean ACC’s fund is half weighted to bonds, but it still has one-third of its money in domestic and global equities, including almost $1 billion worth of stock in Alphabet, Microsoft and Apple.

The modest seven

ACC’s US tech stock investments are managed by eight external managers.

“They’ve tended to be light on those stocks rather than heavy and we can understand why,” Dyer said.

“At one point, none of our managers held any Nvidia stock. They collectively made the decision this is fully priced and acted accordingly.”

An ACC spokesman told the Herald that as an active investor, the state insurer did not want to disclose its current holding - but it does hold Nvidia shares today.

Its most recent public disclosure, in June last year, had ACC holding Nvidia shares worth $16.9m.

At that time, ACC also had stakes in all of the Magnificent 7, bar Tesla, with shares in Microsoft ($402m), Alphabet ($326m), Apple (worth $204m), Meta ($118m) and Amazon ($97m).

Locally, ACC does take a bit of a whirl

It should be noted ACC’s investment arm makes lots of small bets on local startups (and both have significant holdings in NZX-listed tech firms like Spark and Chorus). It’s almost the exception to find a Series A round without the state insurer chipping in.

It’s high-risk stuff, if often with sums of only tens of thousands involved, but an important part of our funding system for early-stage companies (the Super Fund has been indirectly involved with startups by back venture capital funds).

And in one interesting private-company case, ACC was actually a lot more adventurous than the Super Fund. ACC contributed when Rocket Lab staged a US$140m Series E raise in 2018. The Herald understands that the Super Fund had discussions but ultimately passed.

At the time, ACC refused to comment on how much it had invested, citing commercial sensitivity, but a spokesman said it was “a significant amount”. ACC said this week it could not comment on its Rocket Lab holding.

Across the Tasman, it’s a different story, with Australia’s sovereign fund, the Future Fund happy to disclose that it has Rocket Lab in its top 100 listed equities, at number 28, with a stake worth $264m. Unlike the Super Fund, the Aussie crown fund did buy in during Rocket Lab’s early days.

The ‘smartest guys in the room’ have doubts

Lastly, it should be noted that Dyer and the external managers he works with are not alone in their wariness of a new tech bubble.

“There is some growing scepticism about the AI boom,” The New York Times’ DealBook newsletter reported this morning. “Some hedge funds have begun to reduce their holdings in Nvidia and other Magnificent Seven tech stocks.”

And one NYT and Bloomberg contributor has turned downright dark:

Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.