Do you have a source for “with very little observer effect”? I don’t know better, it just seems like a big assumption the CPU can emit all this extra stuff without behaving differently.
If you encounter a slowdown using RTIT or IPT (the old and new names for hardware trace) it's usually a single-digit percentage. (The sources here are Intel's vague documentation claims plus anecdotes; Magic Trace, Hagen Paul Pfeifer, Andi Kleen, Prelude Research.)
Decoding happens later and is significantly slower, and this is where the article's focus, JIT compilation, might be problematic using hardware trace (as instruction data might change/disappear, plus mapping machine code output to each Java instruction can be tricky).
Intuitively this works because the hardware can just spend some extra area to stream the info off on the side of the datapath -- it doesn't need to be in the critical path.