Investors should consider the investment objectives, risks, charges and expenses carefully before investing. This information and other information about the Funds can be found in the prospectus and summary prospectus. For a prospectus and summary prospectus, please visit our website at bailliegifford.com/usmutualfunds Please carefully read the Fund's prospectus and related documents before investing. Securities are offered through Baillie Gifford Funds Services LLC, an affiliate of Baillie Gifford Overseas Ltd and a member of FINRA.
Markets love simple stories. Artificial Intelligence has made them even more tempting. As investors try to make sense of AI’s long-term impact, it is tempting to divide companies into two neat camps: the obvious winners, such as chipmakers, and the businesses at risk of being disrupted. Many digital-native businesses have been dumped in the second of those two categories. Some rightly so, some not. If a company’s moat is mainly the ability to write good code or build a nicer interface, then AI is a real problem. Others with proprietary data, or where regulation or security is paramount, stand a much better chance not only to compete but also to improve through the adoption of next-generation technology.
Spotify has found itself in the second bucket. The narrative is simple. AI makes music easier to create. It makes recommendations easier to imitate. It may also force Spotify to spend more on technology, just as parts of its product become easier for others to replicate. But that misses what Spotify has become.
Spotify is not just a subscription app. It is a two-sided marketplace. On one side are listeners. On the other are artists, labels, podcasters, authors and advertisers trying to reach them. The more listeners Spotify has, the more useful it becomes to creators and advertisers. The more creators and advertisers use Spotify, the better the experience can become for listeners. Spotify’s real advantage is not just the app. It is the system around it.
More listeners create more data. Better data improves discovery. Better discovery increases engagement. Higher engagement makes Spotify more valuable to creators and advertisers. This is where AI could strengthen Spotify rather than weaken it.
The company has almost two decades of data on how people really listen. What they play, what they skip, what they save, what they search for and what they return to. Spotify calls this its ‘Large Taste Model’. The phrase may not inspire, but the idea matters. Taste is not fixed. It changes with mood, time of day and context. Understanding music is one thing. Understanding what someone wants to hear at a particular moment is much harder. A rival can use a large language model to understand words. It can build AI playlists or conversational search. But Spotify is trying to understand the link between words, music and behaviour across hundreds of millions of users.
Its global user base now generates approximately 3.4 trillion taste signals a day. Those feedback loops are hard to recreate from scratch. AI may therefore make Spotify’s proprietary data more valuable, not less.
The same may be true of AI-generated music. Spotify’s original opportunity was not that music could move online. That had already happened. The problem was that much of it had moved online illegally. Spotify made the legal option easier than piracy, turning messy demand into a paid product that worked for users and rights holders.
AI music creates a similar problem in a new form. Fans are already using AI tools to make covers, remixes and edits. Some of this is harmless, but some of it is exactly what rights holders fear, music built from existing catalogues without clear consent or compensation.
Spotify’s recent agreement with Universal Music Group points to another path. The companies have signed licensing arrangements covering recorded music and publishing, allowing Spotify to develop a generative AI tool for fan-made covers and remixes from participating artists and songwriters. The feature is expected to be a paid add-on for Premium users, with artists and songwriters sharing in the value created.
Spotify is not trying to become a pure AI music generator like Suno or Udio. It is trying to become the licensed consumer layer for AI music, where fan-made versions can exist inside the music industry rather than outside it.
The old Spotify playbook was simple: make legal streaming easier than piracy. The new one is to make licensed AI music easier than the uncontrolled alternatives. There are still risks to this endeavour. Fans may not pay. Regulators and rights holders may still disagree over the boundaries. But AI is not a one-way threat to Spotify’s catalogue. It can also create another way to monetise it.
That is the broader lesson. Some digital moats will be exposed by AI, especially those built mainly on code or product polish. The stronger businesses are the ones with proprietary data, direct consumer relationships and marketplace dynamics that become more valuable as AI improves.
Spotify may not be one of AI’s obvious winners. But obvious stories are rarely the most durable ones.
Risk factors
The Funds are distributed by Baillie Gifford Funds Services LLC. Baillie Gifford Funds Services LLC is registered as a broker-dealer with the SEC, a member of FINRA and is an affiliate of Baillie Gifford Overseas Limited. All information is sourced from Baillie Gifford & Co unless otherwise stated.
As with all mutual funds, the value of an investment in the Fund could decline, so you could lose money. International investing involves special risks, which include changes in currency rates, foreign taxation and differences in auditing standards and securities regulations, political uncertainty and greater volatility. These risks are even greater when investing in emerging markets. Security prices in emerging markets can be significantly more volatile than in the more developed nations of the world, reflecting the greater uncertainties of investing in less established markets and economies. Currency risk includes the risk that the foreign currencies in which a Fund’s investments are traded, in which a Fund receives income, or in which a Fund has taken a position, will decline in value relative to the U.S. dollar. Hedging against a decline in the value of currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. In addition, hedging a foreign currency can have a negative effect on performance if the U.S. dollar declines in value relative to that currency, or if the currency hedging is otherwise ineffective.
For more information about these and other risks of an investment in the Funds, see "Additional Information about Principal Strategies and Risks" in the prospectus. There can be no assurance that the Funds will achieve their investment objectives.
This communication was produced and approved in June 2026 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.
This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research and Baillie Gifford and its staff may have dealt in the investments concerned.
As at March 2026, Baillie Gifford held Spotify. A full list of holdings is available on request and is subject to change.
197612 10063779
