Investors have faced a turbulent start to 2025, contending with trade tensions, shifting US policy and fresh tariffs. Technology, the standout performer of 2024, has also seen a sharp pullback as markets reassess the near-term impact of generative artificial intelligence.
Yet for long-term investors, we believe this moment offers reason for optimism. Technological innovation, particularly in AI, continues to advance rapidly. And after recent corrections, valuations have reset, creating potential entry points for those looking to position for the next era of growth.
Decades of experience investing in technology have taught us that today’s volatility often precedes tomorrow’s breakthroughs. Here, we explore three enduring lessons and where we see opportunity as we move into what we call the “intelligence age”.
Lesson 1: Think exponentially
A defining feature of many breakthrough technologies is exponential growth: slow early adoption followed by a steep S-curve.
Initial scepticism is common. High costs, unproven models or steep learning curves often deter early adoption. But as barriers fall, growth can far exceed expectations as seen with e-commerce in the 2000s and cloud computing in the 2010s. We’re now seeing a similar pattern with generative AI.
While some question AI’s commercial potential, we see echoes of past transitions. The innovation cycle is accelerating, tools are becoming more accessible and costs are falling. In our opinion, recognising these patterns early and maintaining conviction can give investors a powerful edge.
Lesson 2: Quality is critical
Identifying the right technologies is important. But long-term success depends on backing the right companies. That means looking beyond short-term momentum to find businesses with enduring competitive advantages.
In our experience, leadership matters. Visionary founders and CEOs often drive lasting innovation. Just as important is ecosystem strength, where platforms become so deeply embedded in user experiences that switching becomes difficult.
These qualities continue to set long-term winners apart. When we identify a company with a visionary team, defensible moat and a massive market opportunity, our strategy is clear: stay invested and let compounding do the work.
Lesson 3: Stay the course
Volatility is part of the journey. Historically, the tech sector experiences a 10 per cent-plus correction every year. Yet patient investors have historically been rewarded over the long term.
Missing just a few of the best trading days in a decade can significantly erode returns. And it’s often during periods of uncertainty when sentiment is low that the most attractive long-term opportunities arise.
The market tends to overreact during foundational shifts. We saw this in the early days of the cloud, and we see it again today with AI. But the fundamentals are intact, in our analysis. The earnings power of leading tech firms continues to grow.
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. Generative AI is just the beginning. The next phase, known as agentic AI, will see models not just assisting, but acting autonomously. Meanwhile, physical AI applications, from robotics to autonomous vehicles, are advancing quickly.
These advancements promise profound change in how we work, deliver health care, manage logistics and more. Like past revolutions, there will be challenges. But for investors with a long view, we believe the opportunities are abundant.
Decades of experience have taught us to look through the noise, focus on fundamentals and stay invested through the cycles. These lessons have guided us through past transitions and will shape how we navigate what comes next.
Matt Cioppa, portfolio manager and research analyst, Franklin Equity Group
