The New Tech Investing Landscape

Market Opportunity & Shifts

• Investors are underexposed to technology opportunities below the mega-cap tier, specifically in US mid-cap companies and emerging international markets.
• The recent sharp pullback in the tech sector, driven by rising interest rates, is viewed as a catalyst for building positions in transformational companies at attractive valuations.
• Two fundamental drivers are democratizing access to tech innovation:
  • The rise of public cloud infrastructure, enabling scalable and on-demand compute for software companies.
  • The proliferation of mobile devices, with global penetration now exceeding ownership of toothbrushes, creating intelligence and compute power at the network edge.

Sector-Specific Opportunities

• Software:
  • Enterprise Planning: A new generation of SaaS companies is gaining traction by providing adaptable, modern architectures that allow businesses to iterate rapidly amidst changing facts.
  • Customer Reach: Tools enabling medium-sized businesses to adapt to omni-channel and fully digital worlds to efficiently manage customer relationships are highlighted.
• Digital Payments:
  • The shift from cash and check to digital infrastructure is considered a structural change that will persist long-term.
  • Post-pandemic economic reopening is expected to trigger a material acceleration in underlying transaction volumes, which were previously suppressed.
  • Specific beneficiaries include companies focused on merchant acquisition, which serve small businesses most impacted by lockdowns but positioned to recover first.
  • Cross-border transaction platforms are anticipated to see margin expansion as travel and global movement resume.
• E-Commerce & Advertising:
  • Significant innovation in e-commerce models (e.g., group buying) is occurring in China and is being replicated rapidly in Latin America and Southeast Asia.
  • Online advertising markets are expected to rebound as travel and other industries resume spending to drive demand.
  • Innovation in advertising mediums, such as virtual reality (VR) and augmented reality (AR), presents underappreciated wealth creation opportunities.

Valuation & Investment Discipline

• While pockets of the tech market remain overvalued, the recent market reset has created opportunities to accumulate shares of high-growth companies at attractive entry points.
• The firm's strategy emphasizes active management to identify names with strong fundamentals and the potential to beat earnings estimates.

Risk Factors & Challenges

• Disruption: The primary risk involves correctly identifying which emerging companies will win against established vendors in the face of rapid technical change.
• Geopolitics: Ongoing trade tensions and regulatory friction between the US and China require careful analysis of potential outcomes.
• Regulation: Increased scrutiny on market dominance by authorities in the US, Europe, and China regarding mega-scale platform vendors poses a significant risk to the sector.

Long-Term Outlook

• The firm maintains a bullish outlook, projecting that the next decade will see more acceleration and disruptive change than the previous 30 years.
• Key growth areas driving this long-term thesis include artificial intelligence, machine learning, advanced semiconductors, and the continued expansion of digital payments and software.
• Investors are urged to broaden their portfolios to include dynamic, emerging companies to capture these vast opportunities.