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3 Top Tech Buys For 2015: ARM Holdings plc, Imagination Technologies plc and Pace Technologies plc

It is no secret that technology stocks took a bit of a battering earlier on in the year. On April 11th 2014, the NASDAQ dropped 3.1% — its worst one-day percentage loss since 2011 — but since then the index has steadily recovered gaining 15% so far this year: on December 29th 2014 it closed at 4,806, its highest close since March 2000.

Anyone who is everyone has been willing to give technology stocks a chance. Legendary investor Jim Mellon (net worth approximately £800m) is also an advocate for investing in the technology sector in his latest book titled Fast Forward – The Technology and Companies Shaping Our Future. Within, Mellon points out the merits of driver less cars, robotics and nanotechnology.

So here are my top three technology stocks to invest in for next year.

ARM Holdings (LSE: ARM)

Despite an analyst at broker Liberium saying that the “smartphone party is over” and “licensing can’t grow at the same rate indefinitely”, the UK chip maker is upbeat about the fourth-quarter and beyond. ARM expects its smartphone royalty revenue growth to accelerate to a 15%-25% compound annual growth rate (AGR) up to 2018 from less than 8% this year. However, ARM has to “watch its back”. US chip maker Intel plans to launch a competitive smartphone product SoFIA to market in early 2015, so the pressure is on in the smartphone world. Also ARM’s finance director, Tim Score plans to leave in 2015 which could spark management woes.

Imagination Technologies (LSE: IMG)

The company beat analysts’ forecasts with its most recent set of results in mid-December; however, it reported a pre-tax loss of £10.7m, down from a profit of £2.2m. The UK microchip designer, which counts Apple as its biggest customer (and ARM Holdings as its UK rival), earlier launched MIPS Creatot I20 – which targets hobbyists and children who want to learn computer coding. This is a company which is continually innovating and developing. Imagination expects a stronger performance in the second half of the year and has plans to bump up its operating profit margins from 14% to 30-40% in the next three to five years. Although its shares have fallen 20% since June (2014), it could be perceived by some tech-hungry investors as a good buying opportunity.

 Pace Technologies (LSE: PIC)

The FTSE 250 company has seen its shares nearly quadruple in the past three years. It has built on its relationship with US cable providers such as Comcast and AT&T. Pace recently appointed a new group chief financial officer (CFO) Mark Shuttleworth, an appointment which analysts welcomed, although the sudden resignation of the previous CFO Roddy Murray did cause a bit of a share wobble. The set-top box maker trimmed its full-year revenue forecasts by 3% to $2.6bn-$2.65bn in November 2014, however, it boosted its projected operating margin to more than 9% for the full year. Things look rosy for Pace if they expand into software or  the “smart” connected home market, according to broker Liberium.

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Sabuhi Gard has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings. The Motley Fool UK owns shares of Imagination Technologies and Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.