T. Rowe Price Fund Manager Henry Ellenbogen speaks with CNBC’s “Squawk Alley” on investing in emerging tech companies.

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In recent years, the tech sector has experienced a significant level of inflation, leading to a more selective approach in investing in emerging companies. According to industry experts, the rapid growth and high valuations of tech companies are a cause for concern, as it creates a challenging environment for investors looking to allocate capital to the most promising startups.

One of the key factors contributing to this inflation is the increasing level of competition in the tech sector. With new players entering the market and existing companies expanding their offerings, there is a high demand for investment in emerging companies with strong potential for growth. This has resulted in inflated valuations and increased pressure on investors to be more discerning in their investment decisions.

According to financial experts, the tech sector’s inflation has also been fueled by the influx of capital from venture capitalists, private equity firms, and institutional investors. This flood of money has created a competitive environment where startups are able to command higher valuations, often without demonstrating a proven track record of growth and profitability. As a result, investors are being advised to assess their investment options carefully and focus on companies with a clear path to sustainable growth and profitability.

The selective approach to investing in emerging tech companies is further exacerbated by the impact of market volatility and economic uncertainty. With global events such as the COVID-19 pandemic and geopolitical tensions creating a level of unpredictability in the market, investors are becoming more cautious in their investment strategies. This is leading to a greater emphasis on investing in companies with resilient business models and strong management teams.

In response to these challenges, experts suggest that investors should adopt a more disciplined and discerning approach to evaluating emerging companies in the tech sector. This includes conducting thorough due diligence, assessing the competitive landscape, and scrutinizing the potential for sustainable growth and market disruption. By taking a more selective approach, investors can minimize the risk of investing in overvalued companies and focus on opportunities that offer the potential for long-term success.

Furthermore, industry experts are also advocating for a shift towards impact investing in emerging tech companies. This approach focuses on investing in companies that have the potential to create positive social or environmental change, in addition to delivering financial returns. By prioritizing companies with a strong social or environmental mission, investors can align their investment strategies with their values and contribute to the growth of impactful businesses in the tech sector.

In conclusion, the tech sector’s inflation has led to a more selective approach to investing in emerging companies. With increased competition, inflated valuations, and market volatility, investors are being advised to adopt a more disciplined and discerning approach to evaluating investment opportunities. By focusing on companies with a clear path to sustainable growth and profitability, as well as a positive social or environmental impact, investors can navigate the challenges of the tech sector and contribute to the growth of impactful businesses.