One of the key risks facing technology investors is the unbridled optimism that often accompanies such developments, as Mark Murray, senior investment analyst at Morningstar, warned, citing the "extrapolation of high growth into the decent future".
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"On top of having performed well recently, these stocks usually carry exciting and gripping narratives making us forgot about boring history and long-term data," he said.
"While it can be tempting to view the current group of companies as unique and history as not relevant, it is worth remembering technological changes are not new and have been a frequent presence for hundreds of years."
There are always differences, he noted, but in important respects current changes are "no different" from previous technological innovations. As such, it is important to delve into that "boring history" and remember the losers as well as the winners.
Murray explained: "Rather than just focusing on Google's history for example, it is important to remember Veronica, Dmoz, LookSmart, Infoseek and many more that failed."
"With this data we can see just how optimistic our long-term assumptions are, and perhaps whether we need to dial down the excitement which comes with the territory of technology."
Wide scope within tech
Another area investors must consider is how vast a space the term technology covers, affecting the duration, quality and feasibility of investment options.
WisdomTree director of macroeconomic research and tactical solutions Mobeen Tahir explained that while such investing is predicated on a "vision of the future", it is possible to have two technology portfolios with little else in common.
In particular, he highlighted the disparity of investment timelines on offer: "Someone investing in the BioRevolution may have to wait a few years before DNA, a far superior store of data compared to silicon, becomes a commonly used storage application.
"In contrast, however, they need not wait for technologies like precision agriculture to bear fruit. Thus, for tech investors, virtues of diversification, a smart exposure to the theme of interest, and patience can be the keys for navigating macroeconomics."
The global technology arms race
He did, however, note a common thread between all technology investments, arguing they are all subject to the actions of central banks for two reasons.
"First, tech-driven businesses bet on growth promising returns on investment in the future," he said. "Discounting future returns at a higher rate means lower valuations today," Tahir added.
"Second, higher interest rates can also make it harder for tech companies to raise debt, or service debt, given cash flows can be less stable compared to a company characterised as, say, a value stock."
While central banks are currently creating headwinds for the sector, Tahir argued that governments are having the opposite impact.
"Seldom has global policy support been as unanimous for a megatrend as it is for the energy transition today," he said.
"Most recently, the US ‘Inflation Reduction Act 2022' has committed $369bn for climate change initiatives, termed by many as the single biggest climate investment in US history."
Long-term growth outlook
Despite the poor year for technology after several bullish ones, David Coombs, fund manager at Rathbones, believes the "entrenchment of tech in our everyday lives" will help the asset class outlast the turbulence.
He cited falling working populations, shift to digital-led economies and the aforementioned transition to net zero as some of the structural arguments for the sector but warned of "irrational exuberance" that bled into some areas of the market.
"Most of the irrational exuberance took place in the most speculative parts of the technology sector where hot and cheap money was caught up chasing the next unicorn and promises of incredible profits many years in the future," Coombs said.
"SPACs were one kind of asset at the epicentre of this, with IPOs for flying taxi companies and the like attracting capital and driving valuations to levels which would make even the most optimistic investor wince."
"We have always avoided this part of that market and still do now," he added.
Winners and losers
For investors looking to individual stocks, manager of the Stonehage Fleming Global Best Ideas Equity fund Gerrit Smit espoused the virtues of Japanese technology firm Keyence.
"We have followed Keyence for three years, but only added to the portfolio recently as market conditions and yen weakness against the dollar brought the stock to a more attractive valuation level," he said.
"It essentially acts as a management consultant to industry on any form of automation to drive productivity, designs, outsources manufacturing, and then provides the best solutions to suit those tasks.
Although the firm is classified as a technology stock, it does not correlate highly with other stocks in the sector, which brings in further benefits in terms of portfolio diversification, he noted.
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One firm that has fallen victim to competitive disruptors and maturing growth is PayPal, which Smit described as a good business, but no longer a "best idea".
"The firm got ahead of itself in its expectations, with growth maturing in the business faster than expected," he explained. "As a result, the business strategy shifted from one of customer acquisition to instead deriving more revenue from its existing customer base.
"PayPal has also been disrupted heavily by competition. Where it previously had a sustainable competitive advantage, which is one of the key pillars of our investment process, new firms entering the space have eroded its dominance."