Where next for tech shares following the tariff turmoil?

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Kyle is joined by Mike Seidenberg, who specialises in technology shares and manages Allianz Technology Trust. The episode focuses on how Mike has approached the uptick in volatility for tech shares in 2025 as tariff uncertainty spooked the sector. Mike explains that during the sell-off he bought two Chinese companies to increase the portfolio’s diversification, and runs through his latest thinking on key tech trends, including artificial intelligence (AI). He also shares his outlook for tech shares and views on long-term themes.

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Kyle Caldwell, funds and investment education editor at interactive investor: Hello, and welcome to the latest episode of On The Money, a weekly bite-sized show that aims to help you get the most out of your savings and investments.

In this episode, I'm speaking to an investor who specialises in technology shares, and that investor is Mike Seidenberg who manages the Allianz Technology Trust Ord (LSE:ATT).

I asked Mike how he approached the uptick in volatility for technology shares so far in 2025 as tariff uncertainty spook the sector and the wider US market. I also asked Mike to look ahead and give his outlook for the sector.

Mike is based in San Francisco, so just to flag that this was a remote interview, and the interview took place last week in mid-May.

So, let's get to it. Mike, we've seen so far in 2025, that it has been a trickier hunting ground investing in technology shares. Uncertainty regarding US President Donald Trump's trade policy caused a pick-up in stock market volatility from around mid-February to early in April.

What were your views on the sell-off? Was it justified, overblown, or somewhere in the middle?

Mike Seidenberg, manager of Allianz Technology Trust: Sure. It's a good question. To say it's been a volatile year is a real understatement. Tech started off strong at the beginning of the year, then you had a fairly dramatic drawdown due to the discussion around tariffs and what that might mean to companies.

As we sit here today, it appears that the initial tariff discussionswere just that, to get countries to the table to renegotiate tariffs. And that appears to be the direction we're going. Who knows how it plays out?

I think the one thing we've done as a team is to make sure that if we're going to make a decision, we do it wisely and not be reactionary, and that's something that I think we practise quite a lot. You know, we're very disciplined around that. So, I think that we're going to maintain our discipline and continue to look for unique opportunities, companies solving difficult problems, etcetera, etcetera. So, that's how I feel. It's definitely been something where it has introduced a lot of volatility with respect to the day-to-day stress of the job is what I'd say.

Kyle Caldwell: And how much of a factor alongside tariff uncertainty were valuations to blame for the sell-off? Of course, both 2023 and 2024 were very strong years for the technology sector, and as a result of that, the valuations did become richer.

Mike Seidenberg: Yeah. I didn't look at stocks at the end of 2024 and say, 'Oh, boy. Oh my goodness. These are really expensive.' I think in certain sectors, you had higher valuations.

But I think on average, remember, we've digested a lot of product post the pandemic. So, in short, technology [had] good years in 2023 and 2024. But I went into 2025 thinking about a real rifled approach, which is why at the margin you can see the trust runs fewer positions. They tend to be bigger, they tend to be more focused on more secular ideas.

I entered 2025 thinking that in some of the sectors we cover, we had a chance for really good appreciation. Here, again, we saw a drawdown. We've seen a recovery. We've seen companies report Q1s that, on average, are pretty good quarters, you know?

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Kyle Caldwell: And we've seen over the past month or so, US stock markets have been making a recovery. It all started when Donald Trump pressed the pause button on delays in tariffs for most countries - a 90-day pause. Since then, we've also had the US and China strike a trade deal as well. Do you think this uncertainty over tariffs is now over, or could there be more short-term pain to come?

Mike Seidenberg: With the current administration, it's probably the latter, not the former, right? I mean, could there be [more pain]? Absolutely. I mean, the unpredictability is very difficult to predict by definition.

We've seen stuff that I don't think any investors thought we'd see from the current administration. Having said that, our job is to build a portfolio that can perform in a variety of macro conditions, and that's the task at hand. So, I could wring my hair out and be like, 'Oh, woe is me', unless I plan on passing the baton to somebody else, our job is to invest in technology companies that solve difficult problems, that are going to execute in a variety of macros. And, therefore, what you see with the trust traditionally is, you see tilts, right?

In a more bullish economy, you would probably see us tilt more to the higher-growth names, in a more challenging economy, we'll probably have more kind of GARP-y value stocks. But, ultimately, it's building the portfolio from a bottom-up perspective with a macro overview, and that's our job.

Kyle Caldwell: In terms of portfolio activity, I spotted that you've recently introduced two new Chinese companies, Alibaba Group Holding Ltd ADR (NYSE:BABA) and Tencent Holdings Ltd (SEHK:700). Could you talk us through that decision? I saw that you said that it was to give the portfolio more diversification.

Mike Seidenberg: Not surprisingly, we're looking outside the United States. It's not just limited to those two for opportunities in technology given what we've seen from the tariffs - or the proposed tariffs, is the correct statement - but,  I do think at the margin, all things being equal, there is going to be some potential backlash against US companies given the policy decisions that are being proposed. That doesn't mean that that's the final kind of outcome.

So, we have looked outside the US. I think in the case of the Chinese companies that you referenced, Alibaba and Tencent, those were bought for very specific reasons. I mean, really driven around AI solutions and really feeling that they had some differentiated product, that we were protected from a governance perspective, given where they are in the pecking order of the Chinese tech companies. They're at the very top. I think I've been pretty clear that the administration in China is something that is fairly uncomfortable for the team, but we thought that the benefits outweighed the risk with respect to some of these AI solutions that we're seeing out of the likes of Alibaba and Tencent.

Kyle Caldwell: And did you make many of the changes during the sell-off? I know that you have a lot of exposure to the Magnificent Seven stocks. I think the only one you don't own in your top 10 holdings is Tesla Inc (NASDAQ:TSLA). I don't think you have that at all. Have you maintained positions for those sorts of stocks?

Mike Seidenberg: We probably varied the positions a little, not a lot. I think it's also important, despite the fact that we are using a fair amount of capital in the Magnificent Seven, it's just a reminder to the listeners that we are underweight relative to the benchmark, which is why I'm proud of the team's ability to keep up, despite not owning benchmark weights in these stocks, which have just been on a tear over the past few years.

Like most portfolio managers, we have varying degrees of things we're more excited about within that group and things we're less excited about. But for the most part, we haven't made major changes. We've been underweight NVIDIA Corp (NASDAQ:NVDA) from a benchmark perspective and we remain underweight. I think it's a great company. Our thesis, which had nothing to do with tariffs, had to do with the summer of last year, just kind of looking at product transition, which can be tricky for companies as they introduce new products from a production perspective.

But, on average, and I've said this for a long time, the Mag Seven are really good companies. Our job is to find performance elsewhere at the margin, and we really try to charter ourselves in trying to do that.

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Kyle Caldwell: In percentage terms, what is the current underweight for the investment trust versus those seven stocks?

Mike Seidenberg: I don't have the exact number off the top of my head. On average, we are materially underweight the Magnificent Seven because they are such a chunky portion of our benchmark. So, in some cases, we could be at 50% of the benchmark. I wouldn't want to throw out a number unless I had the exact number.

Kyle Caldwell: You've touched on the AI trend. Could you outline how big a theme it is in the portfolio and what your latest thinking is? It'd be great to hear some sectors and other companies mentioned that you invest in for that theme.

Mike Seidenberg: Sure. There isn't a company that investors interact with today that isn't looking at artificial intelligence as a way to make their business better...from McDonald's to Microsoft, right? Everybody's trying to figure out how to use artificial intelligence to sell more things, [generate] better customer service, take out costs, you name it, right?

When I think about the trust and how we're positioned today with respect to AI, we're really looking at the enablement side as companies use the technology to make their products better.

I'd say that previously we'd had pretty chunky position sizes in the picks and shovels side of the business. Those are a little bit smaller today and [we're] probably trying to play it through a variety of other sectors.

If you take a look at some of the ad companies, whether it's Google or Meta Platforms Inc Class A (NASDAQ:META), they're really using artificial intelligence to make not only their tools better for their customers, but also the experience better for us, the consumer.

If you take a look at some of the security companies, cybersecurity companies, which is a large theme for the trust, you're seeing artificial intelligence make the users of cybersecurity products more efficient, right? And that's a huge pain point.

I was just at RSA, which is the large security event a few weeks ago in San Francisco, and the one message that you hear consistently at that trade show is 'we need people'. We have too many open job racks, we have too many false positives. And by the way, the adversaries are getting better and better, right? That is not the equation that you want to hear.

But then you talk to some of our holdings, and you hear about them using artificial intelligence to make their products better and that's a win. Those are the types of things we're looking for.

I don't think there's any, call it Fortune 2000 company, that isn't considering what it means to her or his business. But we'll continue to look for enablers. We'll continue to look for companies that we think are potentially on the picks and shovel side of the business. This is a really important movement in technology and you get stuff like this once every 10 to 12 years.

So when it happens, it's powerful. And you saw that, right? You saw that with the results of the hyperscalers, which basically said they were continuing to invest in their artificial intelligence solutions and build out data centres because they see demand for the services, right? So, that's a pretty big vote of confidence in my opinion.

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Kyle Caldwell: A key part of your focus is to identify market leaders. In the past, you've said that technology companies that are market leaders, who execute well, are likely to be rewarded. Could you talk us through how you find those potential winners?

Mike Seidenberg: Sure, Kyle. We operate under a mosaic. We're really chartered with going out and doing a lot of listening. You listen to customers, and you listen to chief information officers, and you listen to system integrators.

You talk to engineers that are building chips and who's winning bill of materials. And from that, that kind of points you in a direction whether that's a subsector level or [whatever]. It tends to point us in a subsector-level direction.

We then drill down and look at that subsector, look at the competitive landscape, look at the gross profit dollars available, and then figure out, is it interesting? There's a lot of profitless prosperity, and that's not something that I'm that interested in, as an investor. Then we drill down to figure out who the number ones and number twos are in a given subsector.

The good ideas are a dime a dozen, but execution is rare. So, when you find companies that execute, you really want to tie your paddle to that canoe, so to speak. It's a process. It requires patience. Arguably, sometimes we're not patient enough.

The idea is to be able to be on board for that trajectory of execution. It doesn't mean it won't have hiccups along the way, but you hopefully get rewarded for it. And we have seen traditionally in technology that the number ones and twos take disproportional share.

A lot of these companies are fighting for intellectual capital, right? Those are the widgets in a lot of these businesses. And therefore, leadership, culture, how companies deal with problems, that becomes really important stuff to understand the companies that we need to invest in. I'd like to think that we're constantly working on our process. As the portfolio manager, I can't tell you how much I love going to meet with companies. It just makes me excited. I was at RSA, as I mentioned, a couple of weeks ago. Just being on the trade floor, all these customers are there, [just] talking to them, understanding what their problems are, and what tools and technologies they're using to solve it.

I'm fortunate that I have a team of people that have that same passion, that go out and do it in other sectors, and then we work accordingly to figure out the best portfolio for our investors, hopefully.

Kyle Caldwell: Could you highlight a couple of examples of the market leaders that you own in the cybersecurity sector, which, as you mentioned, is the number one theme for the investment trust at the moment?

Mike Seidenberg: It's one of the themes, but I wouldn't say it's the number one theme. We have a variety of themes. If I take a company like CyberArk Software Ltd (NASDAQ:CYBR), where we've owned it for multiple years, they started in what I call server identity that led them to the cloud.

As the cloud proliferated, they started thinking about other types of identity, whether that's machine identity...And then they did an acquisition of a company that had been starved for cash, which has really proven to be thus far a successful acquisition, which, by the way, normally isn't the case in a lot of companies.

I think it really boils back to their initial area of focus, which was solving this pain around getting privileged access to things like servers and routers and things that are just so important in today's world. Then they've branched off, and they've been able to do that in a virtual environment.

Now we're living in this age of agents and machines, and they're moving into that. It's a company that we've known since they went public. This is the second CEO. The founder was the first one who we really liked. [I like] the current one, the new CFO who we've known.

So, I'd say it's been a journey of just being patient. It's been a journey of really understanding why they do better versus their competition. We've had, like most funds, varying position sizes depending on valuation and the overall situation.

I think it's a good example of a company where we've been able to identify it and had a really differentiated view, and more good things came along with that, which just allowed us to rethink the opportunity as time went on.

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Kyle Caldwell: You've mentioned the importance of being patient a couple of times, which I think investors should also have at the forefront of their minds when there are heightened periods of short-term volatility, in particular, with technology, it's very important to take the long-term view. Could you provide an outlook for the technology sector on a longer-term view, say, over the next five years?

Mike Seidenberg: I don't have a crystal ball, but I can tell you this. I do think it's important to be patient, and I think it's really important for our investors and the ones that have been impatient, I think that they feel good about their patience and what we've delivered to them over time.

If you think about areas of leadership for countries like the UK and the United States and many of these first-world countries, it really boils down to a few industries of which technology is one of them. The problems that technology solves on average are pretty difficult things, right? And when you solve a difficult problem or there's a lot of pain, I always say this, people will pay you for that. And if you do a really good job, they'll want to buy something else from you. They'll want to buy a second product, and I often talk to the younger companies that we invest in [and explain] that happy customers want to buy more. I believe that, and I've lived that when I worked in industry...so at the highest level, I don't think the technology story is at all over.

I worked at Oracle...and I can remember people saying, 'Oh, client server, it's over.' There's been lots of 'it's overs'. The reality is that technology is becoming an increasingly important part of the economy, and we're living in a very digital world. People probably aren't going back, right?

I never hear anyone say they're getting rid of their iPhone and they really dislike it. There are aspects of it that people dislike. For example, I dislike the fact that I'm always available, which is why I put a do not disturb sign on my phone when I go to bed, electronically, I might add. But look, technology is the fabric of our lives, and that'll continue to be the case.

By the way, it's not the only industry that I think is an interesting growth industry. In pharma, amazing stuff is happening there using lots of technology in that solution. Sure, it's going to ebb and flow, and there are going to be times where it's more in favor and more out of favor.

But I just go back to this premise that it continues to be an increasing part of creating a competitive advantage for companies, and therefore, that probably persists. Again, it's going to zig and zag, but the technology story isn't a year story, it isn't a decade story, it's a multi-decade story.

I'll be, you know, whatever, skiing, on the beach, and they'll still be talking about technology. When you have that type of innovation, that's just impressive, and it's not an innovation for innovation's sake. And that's the other thing that I always remind myself of.

Kyle Caldwell: Thank you to Mike, and thank you for listening to this episode of On the Money. If you enjoyed it, please follow the show in your podcast app and tell a friend about it. And if you get a chance, leave a review or a rating in your podcast app too.

You can join the conversation, ask questions, and tell us what you'd like to talk about via email on OTM@ii.co.uk. And in the meantime, you can find more information and practical pointers on how to get the most out of your investments on the interactive investor website at ii.co.uk. I'll see you next week.