The global tech sector is set for growth in 2025, as software and service businesses find more opportunities to monetise their products and services, and continue to adopt artificial intelligence (AI) to develop more real-world applications, according to Lukasz de Pourbaix, global cross asset specialist at Fidelity International.
“In 2025, we expect opportunities in the tech sector to broaden out. Tech companies with recurring revenue models and high customer retention should remain resilient in uncertain macro environments, and the non-AI hardware and semiconductor cycle, which has been significantly depressed, should normalise in 2025,” Mr de Pourbaix says.
“Chinese AI startup DeepSeek has demonstrated AI models that offer largely comparable performance to OpenAI’s ChatGPT models and are reportedly relatively more cost-effective. This efficiency advantage has raised a number of questions on the perceived “winners” of the global AI ecosystem.
“This is an evolving picture, and we could see some near-term volatility until it becomes clearer how much more efficient the technology is. But this is good for end users and service providers although it may have negative implications for hardware. It is similar to what we saw during the internet era when people massively underestimated the scale of technology innovation and adoption and the potential for service businesses but massively overestimated the hardware TAM (total addressable market).”
Mr de Pourbaix says investors should focus on services and software businesses that are well positioned to generate durable, long-term earnings from the AI thematic, which can be found in cloud service providers, software, and IT services companies.
“We are finding opportunities in companies that are underappreciated beneficiaries of AI along the value chain. These companies are well positioned to generate durable earnings stream, with AI as a long-term growth driver, but which are not reliant on a rapid pace of adoption.
“It includes IT service companies that could help with AI deployment, cloud service providers that could generate annuity revenue streams once customers build AI workloads in the cloud, software companies that could monetise AI functionality, and customer service software and business process outsourcing companies with domain expertise,” he says.
In the industrial and automotive-exposed analog semiconductor space, new ideas are being added, which Mr de Pourbaix says are trading at attractive valuations.
“While the sector is going through a prolonged downcycle, long-term content growth opportunities and industry structure remain favourable.”
Geographically, Fidelity International sees opportunities in the US market and China. Mr de Pourbaix says the Trump administration and its proposed US policy changes are favourable for the outlook for US tech companies and many non-US companies that have exposure to the US market.
“The geopolitical dynamic and US policy changes around tariffs and trade are favourable for US companies, but pose volatility in Chinese stocks. However, Chinese internet companies retain strong positions and earnings power despite a tough macro environment and any positive impact of the stimulus package would prove favourable.
“China’s industry-leading internet platforms have strong fundamentals with good management teams and prudent capital allocation. These internet companies retain strong positions and earnings power despite a tough macro environment, and the recovery potential is very underappreciated.
“With the current depressed cyclical environment and low valuations, the risk-reward looks compelling in the China internet space,” says Mr de Pourbaix.
The tech sector is diverse, and Mr de Pourbaix points out that there are many opportunities for investors to capitalise on, including ones that will perform well in different market conditions.
“Technology provides opportunities across all sectors, industries and geographies. This theme benefits from long-term structural trends, including shifts towards cloud computing, industrial software, artificial intelligence and gaming, among others,” he says.
“Tech deployment is taking place across all areas of economic activity and has the potential to create value across a diversified pool of businesses. In saying that, we still believe it is important to have a bottom-up investment approach to tap into these opportunities as they arise.”
