After its stellar performance in 2024, the tech sector has had a turbulent start to the year, grappling with a combination of geopolitical tensions and economic uncertainties.
The ongoing struggle for tech supremacy between the United States and China, debate surrounding capital expenditure (capex) growth in data centres and possible overspending by tech companies, as well as the spectre of increased trade restrictions, have led many investors to start the year with trepidation.
Despite this, Hugh Lam, investment strategist at fund manager Betashares, said President Donald Trump’s expanded AI initiatives signify continued growth and substantial opportunities for investors in the sector.
Namely, this week, Trump announced a multibillion-dollar AI hub in Pennsylvania, which Lam explained reaffirms the data centre infrastructure buildout is not a passing trend but a structural shift that’s here to stay.
“Despite concerns that capex spending would slow materially following the release of DeepSeek in January, there are no signs this is slowing down with Microsoft, Meta, Alphabet and Amazon expected to collectively spend US$310 billion this year,” he said.
Adding to this, he said the pervasive integration of AI across industries critical to national security, including cyber security and defence, further elevates its importance.
“The US government will likely ensure domestic companies embedded in the AI supply chain remain well-funded.”
According to data from Betashares, AI-related exchange-traded funds (ETF) have performed exceptionally well in 2025, receiving $44.5 million in net flows – more than double the $18 million in net flows these ETFs received over the last six months of 2024.
“In our view, the US technology sector remains a key structural growth area of the US economy that’s become too hard to ignore. Even as the US exceptionalism narrative has diminished, Trump’s AI Action Plan continues to uphold the strength of US economy,” Lam added.
Similarly, Tej Sthankiya, senior investment analyst at investment manager Federated Hermes, said he still believes in the tech sector and is “structurally bullish” on AI over the longer term.
Several factors underpin his optimism, including strong earnings for mega-cap tech, with firms in this sector delivering strong results in Q1 and reinforcing previous excitement around AI.
“Microsoft’s results in particular propelled enthusiasm (particularly on Azure) as it meaningfully beat expectations with growth re-accelerating,” Sthankiya said, adding that Federated Hermes sees an opportunity in this broader backdrop with many tech stocks still trading at a material discount versus recent history.
Taking a closer look at the Q1 earnings season, he highlighted that 86 per cent (6 out of 7) of the “Magnificent Seven” tech stocks reported a positive earnings per share, compared to 78 per cent for all S&P 500 companies.
“In aggregate, earnings reported by the ‘Magnificent Seven’ companies exceeded estimates by 14.9 per cent, compared to 8.2 per cent for all S&P 500 companies,” he said.
A more benign regulatory backdrop for AI and semiconductors was another reason cited by Sthankiya as key to his bullishness.
Like Lam, he believes the Trump administration’s recent regulatory changes for AI, including scrapping the AI Diffusion Rule – a Biden-era rule which placed stringent export controls on AI semiconductors – have eliminated some of the obstacles to innovation and global competitiveness for American tech companies.
“The trade restriction’s removal could serve as a tailwind for semiconductors going forward,” Sthankiya said.
He also pointed to Trump’s recent deal with the United Arab Emirates (UAE) and Saudi Arabia, which included significant investments in AI and semiconductor technology in the US – incorporating a preliminary agreement to allow the UAE to import 500,000 of Nvidia’s most advanced AI chips per year.
Moreover, offering reason for optimism is the potential of agentic AI to accelerate AI monetisation and adoption, Sthankiya added.
Looking forward, he said Federated Hermes believes the advent of agentic AI – which, unlike generative AI, can act without human input – would be transformative for investors.
“There is a renewed structural optimism on AI, driven by hopes of greater adoption and effective monetisation of AI agents,” Sthankiya said.
Portfolio manager and research analyst from Franklin Equity Group Matt Cioppa similarly pointed to agentic AI as an exciting prospect in tech investment, predicting the technology will fundamentally change the way we work, deliver healthcare, manage logistics and more.
“We believe we are on the cusp of a new era – the intelligence age – where AI is embedded into the very fabric of our lives,” he said in an analysis piece published by InvestorDaily.
According to him, investors would be wise to stay the course and commit to the technology with a long view, despite the challenges. Initial scepticism is common for new technologies, as was seen with e-commerce in the 2000s or cloud computing in the 2010s. This pattern of adoption is being repeated now in generative AI – with agentic AI just around the corner – and he advises that the trick is to “think exponentially”.
“Decades of experience have taught us to look through the noise, focus on fundamentals and stay invested through the cycles.”
If you’d like to read more tech lessons for today’s market from Matt Cioppa, click here.
