Stocks are far from too expensive as long as investors are willing to pay “unreasonable prices”, according to Scottish Mortgage manager Tom Slater, who uses this as part of the investment trust’s philosophy to buy companies that have supernormal potential.
“We look at companies and ask: if everything goes right, how much could you make? For the companies that achieve that, they will prove to have been grossly underpriced. And for the ones that don't, they will prove to have been grossly overpriced. Whichever way it turns out, those prices are unreasonable. So that's the starting point,” he said.
Some could argue that this theory is being tested more than ever at present, with companies scaling to huge sizes in recent years. Just recently, SpaceX, Scottish Mortgage’s largest position, listed on the US stock market with a $1.8trn valuation.
It is far from alone, however. There are three companies (Nvidia, Apple and Alphabet) with market caps north of $4trn, while a further four are above $2trn.
“We've been through a period where a lot of these technology companies – particularly the AI-related ones – have done really well. Are they as cheap as they were three years ago? No. So the question from here is: what has to happen to make good money now?”
Despite their gains, Slater told Trustnet that he remains confident on prices and pointed to Meta – which he does not own in the trust – as an example of why his companies can continue to grow.
The Facebook owner has grown to a market capitalisation of almost $1.5trn. However, while it has been able to achieve “incredible reach”, with some three billion daily users, he noted that it does not add “a huge amount of economic value to each one of its users”.
By comparison, some of the world’s largest companies have built vast distribution networks while also carrying out economically valuable tasks.
“If you can achieve [circa] $1.5trn with relatively frivolous use cases, think what the valuation could be if you get that sort of distribution, but then produce really economically valuable output for all those users. I think it forces you to reconsider just how big a big company can be.”
For example, while Nvidia has grown to become the world’s largest company, it remains on an undemanding price-to-earnings multiple “in the low-to-mid 20s”, the manager said, a figure that is “well within the bounds of what sophisticated investors would consider reasonable”.
“So whether it's Nvidia in the chip space, ByteDance through TikTok and the engagement and value that it's bringing to its users, or Anthropic and what its Claude model is doing in enterprise – there's just huge potential,” said Slater.
There are risks. For example, the Scottish Mortgage manager noted there could be some pockets where “animal spirits have gone too far”.
Additionally, if there are unforeseen roadblocks or hurdles to the continued progression of technology, such as access to power, access to computer chips or geopolitics, some companies could be vulnerable.
“But if the underlying technology continues on the path towards economically valuable work and becomes more cost-effective for enterprises and users, then I think we have much further to run,” he said.
It is this conviction that has led to some of the trust’s biggest winners. Back in 2016, Slater admitted that he did not predict the boom in generative AI that has taken place today, but still bought chipmaker Nvidia as he thought there would be big opportunities elsewhere.
“It could be in machine [learning], it could be in self-driving vehicles, it could be in AI. But we thought each of these opportunities was big enough that if one of them comes off, we can make a good return,” he said.
Similarly, the trust bought Amazon back in 2004 when it was still seen as an online bookseller. Back then, the annual shareholder letter encouraged investors not to define the company as one thing, but to look at other categories including general retail, media and elsewhere.
Today, these opportunities are coming more and more from the private sphere, something Scottish Mortgage can take advantage of. The trust can have up to 30% in unlisted companies. Once above this, it is largely unable to invest additional capital.
In recent months the trust has been far above its 30% threshold as SpaceX has ballooned in size, but this came down overnight when the rocket company listed and allowed Slater to put money back to work in the private sphere.
The trust manager highlighted companies he was particularly glad to be holding including TikTok owner ByteDance, payment processing platform Stripe and Databricks, which is an enterprise software provider that allows companies to structure their data to take advantage of what's happening in AI.
“For a more close-to-home example, there is Revolut, the British neobank,” he added.
These are in addition to Anthropic, the creator of the Claude AI model, which he described as “the one that is attracting the most attention” given the extraordinary revenues reported so far in 2026.
“There are a lot of prospects in there that I think are really exciting and that I'm glad we can give our shareholders access to,” said Slater.
“In the world right now, there's an almost singular focus on what's happening in AI and SpaceX. But there's a whole world of progress out there, lots of interesting ideas. We look forward to being at the point where we have the capacity to invest in new private opportunities (but equally, there's been no shortage of things on the public side that we've been excited to invest in as well).”