Fidelity: Webinar: AI and beyond: Tapping into diverse global technology opportunities

By Hyun Ho Sohn, Portfolio Manager of the FF Global Technology Fund since 2013

Huge artificial intelligence capital expenditure has been a key theme for the technology sector and wider global equity markets this year. Fidelity Global Technology portfolio manager, Hyun Ho Sohn, discusses whether this is sustainable and highlights where he sees attractive opportunities across broader global technology, both within AI and beyond.

The ideas and conclusions here do not necessarily reflect the views of Fidelity’s portfolio managers and are for general interest only. The value of investments can go down as well as up, so your clients may not get back what they invest.

Key points

• After a strong start to 2025, relative performance has recently been impacted by our underweight exposure to some AI-focused names, although the portfolio has benefited from holding several emerging market technology businesses.
• We are becoming more cautious about the AI capital expenditure theme, given signs of temporary over-earning, stretched valuations and overly optimistic market sentiment.
• We prefer to invest in temporarily under-earning businesses with diversified and recurring revenues, which are trading at reasonable valuations. These include select software and IT services companies.

Read the full article.

Hyun Ho Sohn

Hyun Ho Sohn has been the portfolio Manager of the FF Global Technology Fund since 2013. He joined Fidelity in South Korea in 2006 as an industrials research analyst then moved to Hong Kong to focus on technology before managing the Global Technology Pilot Fund from London between 2011-2013. Previous to Fidelity he held a number of analyst roles for Morgan Stanley and Shinhan Investment Corp. His investment experience now accounts to 18 years. Hyun Ho holds a BA from Yonsei University (South Korea) and is a CFA Charterholder.

Performance overview

The fund had a strong start to the year, performing well from January to April. However, recent performance relative to the MSCI ACWI Information Technology Index has been more subdued. Semiconductor and hardware stocks have led the technology rally this year, backed by strong AI-related capital spending, while software and IT services businesses have generally lagged. In the US, Alphabet and Nvidia have performed especially well. Although the fund has benefited from holding the former, our underweight exposure to Nvidia, Broadcom, AMD and other select AI stocks has been the main contributor to relative underperformance.

From a regional perspective, hardware-focused emerging market (EM) stocks have outpaced US and European technology names in 2025. Against this backdrop, we have benefited from several EM holdings, such as Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung Electronics.

Standard period returns net of fees, EUR (%)
 

12-month rolling returns net of fees, EUR (%)

Past performance is not a reliable indicator of future results. Returns may be affected by changes in currency exchange rates.

Source: Fidelity International, 31 October 2025. Performance is for Fidelity Funds - Global Technology Y ACC EUR. Basis nav-nav, net of fees in EUR, with gross income reinvested. Comparative Index: MSCI ACWI Information Technology Index (N). *Hyun Ho Sohn was appointed portfolio manager on 31 March 2013. Performance is annualised.

Is AI capex sustainable?

Large technology companies have continued to spend heavily on AI data centres, driving strong demand for semiconductors, networking equipment and storage systems. As a result, we’ve seen significant earnings upgrades across these areas. Hyperscale cloud providers (companies that operate large data centre networks) have also seen robust demand from customers’ AI workloads and traditional computing needs. There are some key risks emerging, however. For example, cashflow burdens caused by rising AI capital expenditure, profit pressure due to higher component costs, key component shortages and power infrastructure constraints.

At the early stage of every major infrastructure buildout cycle, capital is often overspent and allocated inefficiently, as companies rush to outpace competitors. This creates supply-chain shortages, double ordering, and overbuilding due to the difficulty in estimating demand. New entrants, often backed by external funding, also increase competition. As a result, spending rises to unusually high levels before normalising.

We believe AI capex is following the same pattern. Capex is currently high and increasingly leveraged. AI beneficiaries are seeing strong revenue growth, but cash burn and losses are mounting. The sustainability of spending growth, therefore, relies on the ability to fund these deficits and on the confidence of capital providers. This explains the recent announcements on AI spending and strategic alliances, which may be aimed at boosting investor and lender confidence.

Furthermore, people underestimate the impact of efficiency gains and consolidation. Many argue that AI demand far exceeds supply, justifying continued spending. But AI demand isn’t the same as revenue, and efficiency improvements are rapid. While many ‘enterprise’ AI projects (introducing a particular technology across an entire company) are still at early stages and require significant processing power, only a small fraction will move into production. Meanwhile, many AI start-ups consuming vast resources today will likely consolidate over time.

In summary, AI usage will continue to grow structurally, but that doesn’t necessarily mean AI capex will follow suit.

Our AI exposure

Many AI businesses driven by capex are temporarily over-earning, and their valuations are high because of positive market sentiment. This creates a high risk of losses. We prefer to invest in temporarily under-earning businesses with diversified and recurring revenues, trading at reasonable valuations. When it comes to AI, the hyperscale cloud businesses fit nicely. They are temporarily under-earning due to heavy investment, but their underlying business flows are largely recurring, with reliable customer bases and diversified revenue streams. Even if the AI momentum slows, the risk remains moderate.

We also have exposure to software and IT services companies. These are also largely recurring businesses, but valuations are deeply discounted due to fears of AI-driven disruption and deflation (see more below).

In the hardware and semiconductor segment, we focus on companies with more diversified growth drivers. We believe demand for computing resources will grow more in AI inference than in AI training. Similarly, edge computing (a swifter method of data analysis) will likely become increasingly important. Semiconductor manufacturers with diversified end-markets and customers, and semiconductor equipment companies align well with this view.

Select opportunities among US mega-caps

We remain positive on our mega-cap holdings. Alphabet is considered a clear winner in the AI race, because of its full-stack capabilities. It owns the computing systems, proprietary data and AI models that deliver AI to both consumers and enterprises at a very low cost.

We believe Amazon Web Services’ (AWS) strong position in cloud computing will remain a key advantage in the AI era. Data volume will help AWS find ways to monetise AI services based on customers’ data and workloads.

Meanwhile, Meta’s significant spending has been a concern, but we view this as temporary rather than structural. Meta’s position as a global social network and its value proposition for small businesses to connect with consumers remain compelling.

Finally, Netflix is improving after a period of underperformance. The company’s ability to distribute high-quality media on a global scale remains unchallenged, and its advertising tier continues to enhance both audience reach and monetisation potential.

Adding to software and IT services

Fears of AI disruption often stem from the idea that AI can be used to write software code, replacing traditional software vendors and lowering entry barriers to the software industry. However, after speaking with many companies and industry experts, we believe that the role of enterprise software and IT services companies will actually increase as AI adoption grows. We are therefore adding to select stocks in this area.

While AI can help write code, enterprise software must support intricate business processes, include appropriate guardrails, and meet security and compliance requirements. It needs to be integrated with other software applications and systems. Once software is written, it also needs ongoing maintenance and updates.

Furthermore, many business processes work better with the classic software approach that follows a series of pre-determined steps. AI excels at finding patterns in large amounts of data and delivering outputs based on probabilities, but not every business process needs to be executed this way.

IT services companies may face deflationary pressure as coding becomes more efficient. However, AI adoption will require extensive work in consulting, system integration and digital engineering. AI regulation and compliance will also require human interpretation. Building a strong data foundation is critical for successful AI adoption, which also plays to the strengths of IT services companies.

Opportunities further afield

Away from the US, we currently see opportunities for investors in Europe and emerging markets. For example, Taiwanese semiconductor business TSMC has an unrivalled competitive advantage and is a clear beneficiary of AI. It possesses diversified revenue sources and a broad client base, which make its cyclical risks more moderate than those of its peers.

Chinese company Alibaba has a new management team and its core e-commerce fundamentals have strengthened. The company’s impressive AI innovation and engineering capabilities are also driving momentum in its cloud business.

In Europe, Adyen is a payment services company with a strong processing technology platform for both digital and in-store payments. The company is gaining market share globally, with its scale and low-cost, efficient platform highly attractive.

We also see investment potential among small and medium-sized software companies, which tend to be attractive candidates for larger strategic buyers and private equity firms. In particular, data platform software companies can be interesting targets, given the growing importance of data handling in AI. We also see consolidation opportunities in IT services, especially among companies involved in business process outsourcing or digital engineering.

Outlook for 2026

While we are becoming more cautious about the AI capex theme, we continue to see attractive opportunities in companies where long-term potential is underestimated by the market.

Hyperscale cloud businesses remain core long-term holdings. The software and IT services space is deeply discounted due to AI disruption fears, but we think technological change will create more opportunities than risks.

We also like digital media content and distribution platforms, in areas such as music and video games, which are resilient businesses offering attractive risk/reward dynamics in today’s uncertain environment. Beyond that, we continue to find high-quality compounders and deep-value opportunities in payment services and banking IT solutions.

All in all, while the technology narrative remains focused on AI, the sector is incredibly diverse and continues to offer a wide range of attractive investment opportunities.

Important information

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