Investment Focus: How to invest in AI and technology
Written by Cherry Reynard
22 Sep, 1970
Technology has been the stock market’s star performer for 30 years, and AI is its latest chapter. But is it now too expensive? We look at where the growth is coming from, from Silicon Valley to China, the risk of overpaying, and the trusts, funds and ETFs that let you invest in it.
Technology has been the glory sector for much of the past 30 years. It has been a source of extraordinary growth in both the economy and the stock market. It has disrupted sector after sector, from payments to the car industry, but also created new industries and markets. For investors who have participated, it has been the driver of significant returns.
Its most recent incarnation is artificial intelligence. The development of large language models and agentic AI (or self-learning AI) has promised a productivity revolution. It has spawned a whole supply chain of semiconductors, data centres, power groups and widget makers that have all grown rich on the back of growing demand for this new technology. While it has been controversial, it has been a hugely profitable trade for investors.
Are AI and tech stocks overvalued?
There is always a question over the price investors should be paying for technology growth – and AI is no different. Conventional metrics often suggest that technology is expensive, but investors often underestimate the impact of exponential growth. Amazon’s price-to-earnings ratio was 65x in September 2023, but its share price has more than doubled in the intervening three years.
However, there will be times when it really is too expensive. The Dotcom boom and bust of the late 1990s and early 2000s was perhaps the most famous example. In a febrile environment, investors paid millions for companies with no profits – and in some cases, no revenues. More recently, there has been significant debate over the software sector. It has traditionally commanded lofty valuations, but investors have started to question whether it still deserves them given the presence of AI challengers such as Anthropic’s Claude.
Technology comes in a variety of flavours. While big-bang technologies such as AI impact all parts of the technology complex to some extent, there are still distinct areas: software, hardware, cybersecurity, robotics, cloud computing. There are also the users and providers of technology. Groups such as Ocado or Revolut straddle a line between technology and ‘conventional’ businesses.
Why are tech companies staying private for longer?
Investments in companies that are not publicly traded (i.e. listed on a stock exchange). is playing an increasingly large role in the technology sector. More than any other sector, technology companies are staying private for longer. Ben James, investment specialist on the Baillie Gifford US Growth Trust, says the median age of a US company at IPO has moved from five years in 1999 to 12 years in 2025. He also points out that the number of US public companies has more than halved since 1996, while the number of VC-backed private companies has increased around 25-fold over the past 25 years.
Collective funds have leaned into this shift. Technology-focused investment trusts such as Scottish Mortgage and the Baillie Gifford US Growth Trust are increasingly holding private companies in their portfolios. For Baillie Gifford, this included SpaceX until its recent IPO, but also Anthropic.
Which countries lead the world in tech and AI investing?
Technology is also, increasingly, not just a US phenomenon. While Silicon Valley is still the pre-eminent ecosystem, bringing together investors, entrepreneurs, engineers and administrators, China is fast catching up. As Paul O’Neill, CIO of Bentley Reid, points out, technology is increasingly the most important driver of Chinese economic growth.
Third-quarter GDP grew 4.5% year on year, beating forecasts on chip and electronics exports and the nine-month trade surplus reached $938bn. High-end manufacturing and the digital economy are the ‘new growth drivers’. The 15th Five-Year Plan prioritises self-reliance in science and technology and a modern industrial system. R&D spending, already 2.8% of GDP in 2025, is set to grow significantly. Priority areas include semiconductors, AI, software and critical materials.
He adds that China is now competitive with the US on LLMs. It lags on chips and commercial scale, but, “Stanford's 2026 AI Index says the US-China model performance gap has effectively closed. In March 2026 the top US model led by just 2.7%, and the gap has stayed in single digits for a year. This is despite US private AI investment of $285.9bn against China's $12.4bn.”
South Korea and Taiwan are the other two major players in the technology revolution. These two countries have been supplying the semiconductors and memory necessary for computing power and analysis.
The rest of the world must fall into line behind these giants. Almost no other country has any significant listed technology companies. For the Also called “Footsie”, the name for the share index made up of the largest 100 companies by market capitalisation (total value of all shares) listed on the London Stock Exchange., technology is just 2.4%, for the An acronym for Morgan Stanley Capital International, it creates global stock market indexes. Europe index it is 12.3%. There are isolated exceptions, such as ASML in the Netherlands, but for the most part technology investors will be focused on the US and to a lesser extent in China, South Korea and Taiwan.
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How have tech stocks performed over the past 10 years?
Over the past decade, technology has outpaced every other sector. The Nasdaq Composite, the main benchmark for technology, has delivered an annualised return of 17.6% over 10 years. That means if an investor put £10,000 in a Nasdaq index fund, they’d be sitting on a pot of approximately £57,350 today.
Returns on an initial investment of £10,000.
Nevertheless, there have been some notable winners and losers. The performance of a handful of mega-cap technology companies – variously named the FANGs (Facebook, Amazon, Netflix, Google, Apple), the Magnificent Seven (Alphabet, Amazon, Microsoft, Nvidia, Tesla, Meta and Apple), and now the MANGOs (Meta, Anthropic, Nvidia, Google, OpenAI, SpaceX) – has been extraordinary and has, to some extent, crowded out other parts of the technology space. There have also been some big flops – virtual reality failed to launch, as did the Metaverse. Even mission-critical areas such as cybersecurity have been relatively disappointing.
Julian Bishop, manager of the Brunner Investment Trust, points out that these companies have managed to build up near-monopolies in individual areas – Meta in social media, Alphabet in search, Microsoft in enterprise software. This has helped them deliver extraordinary returns. However, AI is a different game and may be more competitive. There are cheap alternatives emerging in China, for example.
Mike Seidenberg, manager of the Allianz Technology Trust, says that technology leadership is now broadening beyond these megacaps. Software, for example, was initially seen as an ‘AI loser’ and sold off significantly at the start of this year. This has now started to recover as investors have become more nuanced in their views. Seidenberg has been buying companies such as ServiceNow, which he believes may ultimately be an AI beneficiary rather than being weakened by it.
Other areas are showing strength. Cybersecurity has become critically important as AI penetration has increased. Companies are spending more to protect themselves as they recognise the potential costs of a cyber-attack. Robotics is a new and emerging area, alongside areas such as quantum computing and cryptocurrency.
How can you invest in AI and technology?
There are myriad ways to access technology investment. A standard An index that tracks the performance of the 500 largest publicly traded companies in the United States. It's often used as a benchmark for the overall global stock market.tracker will give investors a chunky weighting in technology and that may be enough for many. For specialist investment, however, a good starting point is a large The process of spreading your investment portfolio across different asset classes, such as partially in shares and partially in bonds, in order to reduce risk. global technology Trust, such as Allianz Global Technology or Polar Capital Technology. These have good long-term track records and give exposure to a range of technology sectors. There are also options such as Scottish Mortgage, which has a heavy technology weighting, but also access to private companies such as Anthropic.
There are A type of fund made up of a number of assets which can be bought and sold on the stock market, in the same way as you would with individual shares.for every flavour of technology investing – AI, cybersecurity, robotics, cloud and so on. There are also regional options, such as China AI and robotics. Investors can nuance their portfolios based on the technology they believe will do best.
Many of the private equity Trusts are also heavily weighted to technology. The HgCapital Trust, for example, provides private equity exposure to enterprise software and business technology and is a differentiated way to approach the sector, rather than focusing on the megacaps. The Herald Investment Trust provides access to smaller technology companies. There are also technology infrastructure groups such as Cordiant Digital Infrastructure and Sequoia Economic Infrastructure Income, which give exposure to the ‘train tracks’ of computing power and analysis.
Is AI and tech still a good long-term investment?
Technology always brushes up against fears of over-valuation. However, in general, it has been better for investors to hold their nose and look to the long-term, while accepting that the adoption of any new technology will be bumpy. It tends to be that the technology comes first and the use cases emerge over time. AI appears to be following this familiar pattern.
The enduring power of technology is undisputed. It has become a critical part of the way we live and work.
Businesses buy technology for three reasons: to grow revenues, to take costs out, and to deliver better customer service. I'm constantly trying to figure out what pain does this product solve, because I have learned in 20 plus years of investing in technology companies, if you solve for a pain point in a in a business and do a good job, people will happily pay you money for that.
New technologies are emerging all the time, which makes it a dynamic sector in which to invest, with significant rewards for those who get it right. At the moment, it is AI, but new discoveries change the technology landscape all the time. Breakthroughs in quantum computing, for example, could change the game in multiple areas of technology.
Hamish Maxwell, investment specialist at Scottish Mortgage, says the AI trade is evolving.
Over time, intelligence may bifurcate. Everyday intelligence from writing, reasoning and coding could become cheap and abundant. So value could move around it into AI enabled products, efficiency and infrastructure. But frontier intelligence may remain scarce. If the best models keep solving the hardest problems, from scientific discovery to autonomous agents, value may remain in the intelligence itself.
They also believe there may be opportunities in the ecosystem surrounding AI.
Cheap and abundant intelligence needs an enormous physical system to create it: chips, power, data centres, factories and robots. As intelligence itself becomes cheaper, scarcity moves to the physical things needed to put the intelligence to work.
A final consideration is that there are now moral questions being asked of technology companies. Meta, for example, has been fined for its role in mental health difficulties and suicides in young people. SpaceX stands accused of turning off its Starlink satellite system to stymy Ukraine’s progress in the war against Russia. They have built up astonishing power and are increasingly enmeshed in governments. Investors have to decide whether they are comfortable with that.
Ultimately, it has always been better to be pro-technology than against it, keeping calm through the inevitable periods of Describes the price movement of an investment or index. High volatility indicates frequent and significant price movement, whereas low volatility denotes less frequent or severe fluctuations in price.. It is constantly evolving, disrupting new sectors, finding new markets. Its unique characteristics make it a long-term winner for investors.
