Rising Tech

"Cloud computing greatly improves the way companies deploy capital and how they are investing in information technology," Issakainen says. "Cloud computing makes everything more efficient and also allows a company's IT personnel to be productive in ways that are more than just maintenance."

For tech investors, the most interesting part of the cloud computing trend is the prospect of increased M&A activity in the sector. More and more large companies have been acquiring smaller, more specialized firms, Issakainen says, and he expects the number of deals to pick up in 2012.

"It makes sense for tech investors to own some of those potential targets," he says.

Cloud computing is one of the most important trends in information technology in over 30 years, says TAMRO Capital's Tasho. Companies like Oracle are looking to buy smaller companies that have niche specialties because they want to improve their efficiency and bridge the gaps in their business process between strategy and execution, he says, in order to make sure that they're giving their customers "the right thing at the right time."

"Huge service companies like IBM and Dell want to offer the complete solution, so they're investing in specialty companies. We're going to continue to see a consolidation in cloud computing through these kinds of acquisitions," he says.

That said, embracing the cloud is easier on an individual level, says Jim Farrish, founder of investment advisory firm Money Strategies Inc., as evidenced by the success of social media and networking sites like Facebook. It's much tougher for companies to accept the trend, he says, because security is a big issue and "you can never be 100% certain of who's seeing your data when it's somewhere out there."

Nevertheless, when behemoths like Oracle, IBM and Microsoft start buying up businesses that put them in the cloud, the trend is here to stay, says Farrish.

IBM's acquisition of cloud-based analytics company DemandTec, which connects more than 400 retailers and consumer products companies, is the perfect example of the kind of cloud-based M&A activity that is going to increase in coming years, Tasho says.

"DemandTec is a leader in its field, and it's the kind of acquisition that allows a company like IBM to better understand consumer behavior," he says. "Like Amazon, which was the first to start as a cloud company, many large companies now want to innovate and provide their customers with the best possible experience."

Eye on Asia

It would be short-sighted to talk about the future growth potential of technology without speaking about Asia, which according to Michael Oh, co-portfolio manager of the $153 million Matthews Asia Science and Technology Fund (MATFX), will be the high growth destination for both technology and science over the next decade.

"If you look at Asia over the past decade, it's been about cheap labor and capital inputs for growth," Oh, (left), says, "but there's been a huge wage inflation in Asia and many companies are shifting to technology in order to increase productivity growth without hiring more people. The rationale [for the fund] was and still is today that the tech sector will play a greater role in contributing toward general economic growth."

As Asian economies continue to grow, people's discretionary income will also increase, which means they will be spending more on tech-related goods and services. Given the size of the populations in countries like India and China, Oh believes that Asia is going to become one of the world's largest markets for tech-related goods and services, not just in terms of consumption, but also with respect to innovation.

"The Asian market is becoming big enough to support its own innovations," he says.

Take the Internet, for instance: "The Asian market is one of the biggest in terms of population and the dominant companies are the local ones. The Internet penetration rate in China is only 34%, and the overall penetration rate for Asia is only 22%, even though Asia has the greatest number of Internet users in the world, which means the growth potential over the next 10 years is huge."

Oh advocates a focus on local companies rather than global firms that have an Asian presence. Domestic companies, he says, will allow investors to better capture specific local market growth stories and benefit from local market growth.

TAMRO Capital's Tasho gives the example of Baidu, China's answer to Google, as one of the fastest growing and most profitable companies, which continues to benefit, he says, from the increased adoption of the Internet in China.

Firsthand Funds' Landis has had a great deal of success over the past five years with China Mobile (which is also one of the top 10 holdings in the Matthews Asia Science and Technology Fund).

But investing locally in Asian tech does come with its fair share of risk, in particular very weak intellectual property protection.

"This is one of the key challenges we highlighted many years ago, and it is improving, particularly in countries like South Korea, which has really been stepping up in terms of protecting patents," Oh says. "As more innovation takes place in Asia, it will be natural to provide greater patent protection."