Baillie Gifford investment trusts Scottish Mortgage, Schiehallion and Baillie Gifford US Growth have made a 60% gain on Databricks, one of their artificial intelligence (AI) investments, in just nine months.
The San Francisco company – which accounts for 0.8% of the £14.6bn Scottish Mortgage (SMT) portfolio, 2.6% of £1.1bn private equity fund Schiehallion (MNTN) and 1.6% of the £806m Baillie Gifford US Growth (USA) trust – yesterday announced it was closing in on a funding round of more than $1bn (£740m).
The late-stage series ‘K’ funding round values the unquoted company, whose software helps companies analyse their data sets and prepare for using AI, at more than $100bn (£74bn). This compares to the $62bn valuation it achieved last December when it raised $10bn. That series ‘J’ round included a $20m follow-on investment from Scottish Mortgage.
News of the huge uplift comes as investors pour billions into AI companies, prompting OpenAI founder and chief executive Sam Altman this week to compare the frenzy to the dotcom bubble which exploded in a painful stock market crash in 2000-2003.
“Are we in a phase where investors as a whole are overexcited about AI? My opinion is yes. Is AI the most important thing to happen in a very long time? My opinion is also yes,” he said in comments first reported by The Verge, a tech news website.
Scottish Mortgage held £105m in Databricks
The Baillie Gifford flagship global trust participated in Databricks’ two earlier funding rounds and first invested in the company four years ago. At 30 June, before the latest valuation hike, its total stake was valued at £105.6m, most of it relating to its first series ‘H’ investment in 2021.
It is not yet known if Scottish Mortgage or the other Baillie Gifford trusts are investing in the latest round. Databricks’ announcement did not refer to specific investors but reports said existing investors including Thrive Capital, Insight Partners and venture capital firm Andreessen Horowitz were taking part.
Deutsche Numis, Scottish Mortgage’s corporate broker, said the funding round was likely to push back Databrick’s plans to float, giving it money for its new database offering Lakebase and funding global growth.
Analyst Gavin Trodd estimated the implied valuation upgrade to Databricks would add 42 basis points (0.42%) to the trust’s net asset value. Although a small part of the FTSE 100 listed fund, Trodd said it was another endorsement of the private equity holdings. These make up nearly a quarter of the trust’s assets and have previously been the subject of some investor concerns, although Baillie Gifford has made a big effort to keep valuations up to date.
“We believe that this is an excellent testament to the quality of private companies held and follows valuation uplifts for companies including SpaceX and Stripe,” said Trodd, adding that the current 10% discount on Scottish Mortgage shares was a good entry point for new investors into the distinctive growth portfolio.
Databricks said its business was enjoying strong momentum having launched or expanded partnerships with Microsoft, Google Cloud, Anthropic, SAP and Palantir in the last two quarters.
Scottish Mortgage is also making progress in its recovery from the 2022 growth crash. Its shares have risen 25% in the past year but at £10.58 remain 31% below their £15.28 peak in November 2021. We recently reported that the company had spent over £2.5bn buying back its cheap shares in the past 15 months.
Baillie Gifford US Growth has also recently posted strong annual results. It announced guidance to its fund managers to minimise the risk of a repetition of 2022 when its shares slumped 57%, losing most of the gains made in the tech stock surge during the 2020 pandemic.
