Peel Back the AI Onion With Baron Capital’s Active Approach to Tech

With regard to investing, artificial intelligence (AI) is often viewed as a monolith marked by a single, overwhelming wave of change. However, according to Michael Lippert, Head of Technology Research at Baron Capital, AI is better understood as “an onion” with many layers.

See More: An ETF With An Active, Disciplined Approach to Tech

Lippert explained the onion analogy in a webinar moderated by Cinthia Murphy, director of research at TMX VettaFi, titled “The Technology Landscape: How Investors Can Think Long-Term Amid the AI Revolution.” When it comes to investing in tech, a parable from Benjamin Graham’s “The Intelligent Investor” emerges. As Lippert noted, markets often get caught in the short-term “voting machine” of hype and sentiment. To achieve long-term success in technology investing, it’s best to view the sector as a “weighing machine,” with fundamental earnings growth as the primary focus.

AI’s Speed of Adoption

The defining characteristic of the current era dominated by AI is its speed of adoption. Historically, technological advancements in computing, such as the mainframe and the internet, took 10 to 15 years for full market saturation. On the other hand, the deployment of AI is moving faster and being adopted quicker than any technological development in recent history. As Lippert noted during the webcast, the adoption curve for AI is essentially “vertical.”

That high rate of speed is posing significant challenges for passive investors. Passive tech ETFs, such as those tracking the Nasdaq-100 or the S&P 500 Information Technology Sector, use a market-cap-weighted approach. Because of this, investors get exposure to “the winners of the past”: companies that have already fulfilled most of their trajectory.

In a tech investing landscape marked by this accelerated speed of adoption, the leaders of the next decade are likely not yet dominant names in a broad index. Hence, the opportunity will be overlooked without an active approach.

Baron Capital’s Active Approach

To navigate market complexity, Baron Capital uses a research-driven framework  united in a single investment style and objective to invest in long-term growth business. This approach is built on four key pillars:

1. Durable Competitive Advantage: Identifying companies with sustainable moats that allow them to “grow faster for longer” while maintaining leadership.
2. Visionary Management Teams: Investing in those rare leaders who are willing to “cannibalize themselves” to stay ahead of the innovation curve.
3. Compelling Valuations: Using proprietary analysis to find investments capable of doubling in value over five years.
4. Long-Term Growth Opportunity: Finding secular growth leaders where disruption can yield significant value.

As Lippert noted, the “first S-curve” of AI is focused on infrastructure—semiconductors and data centers. He now believes we are entering a new phase, an age of “Agentic” and “Physical AI.” This signals a shift from digital chatbots to real-world applications, including robotics, space exploration, and autonomous systems.

“I do think robotics is probably the next thing to look at and watch,” Lippert confirmed.

Case Studies: Spotify and Axon Enterprise

The actively managed Baron Technology ETF (BCTK) applies this philosophy to identify the most compelling investment opportunities, which results in a high-conviction portfolio of 40–50 companies. Two of the companies in the fund include Spotify and Axon Enterprise.

Spotify is effectively leveraging its massive data stream to build AI-driven features. This includes a personalized “AI DJ” radio that deepens its moat relative to competitors in the market.

Axon represents the case for an “emerging winner” with a compelling growth story. Originally known for producing self-defense products like Tasers, the company is now a leading software developer. Axon utilizes AI to automatically generate police reports from body camera data, helping reduce administrative tasks that can burden law enforcement.

A Global, Multi-Cap Approach

Unlike other tech funds with a home bias to U.S. mega-caps, BCTK offers global multi-cap exposure. This allows the fund to capture innovation in earlier stages such as semiconductor leadership in Asia and data center growth in emerging markets.

In a market where “everyone is now choosing their AI service,” successful tech companies will be those who can turn this innovation into a durable, profitable business models. By focusing on the “steep part of the S-curve” and maintaining a long-term horizon aligned with Baron Capital’s investment philosophy, investors in ETFs like BCTK can ignore temporary hype and position themselves for true growth over the next decade.