UK tech success story ARM Holdings looks set to change owners once again. Nvidia is buying the semiconductor maker and Apple supplier from Softbank. Tech is a big industry and tech shares — despite a recent boost — still offer great opportunities for growth.
A tech share benefiting from lockdown
Frontier Developments (LSE: FDEV) is a gaming company – a good industry to have been in during lockdown. Its shares have rocketed in 2020 while the wider market has struggled. People stuck at home play more games. Results from Frontier, as well as the more hardware-focused companies like Nintendo, have been very strong through the period.
But there’s longer-term potential in the shares too. This is no flash in the pan. The company is upping its output of games, which are growing more and more popular.
The only downside is that like other UK tech shares with a lot of potential, it’s not a hidden gem. This is why the shares are expensive on a P/E of over 40. It’ll need to keep producing the goods in order for the share to keep rising. If it can though, the P/E may not seem that expensive. Some US tech shares that are far more mature command P/Es of over 100. It’s a tech share I’d think about buying, even though I own shares in Team17.
Other shares with bright futures
dotDigital (LSE: DOTD) hasn’t received the same boost from lockdown, nor has my third pick of UK tech stocks, AVEVA (LSE: AVV). The former is still up on where it started the year, but the latter isn’t. I think the fact that these two are business-focused software rather than a consumer product explains the difference in performance. Fundamentally though, both are solid tech companies in my view.
dotDigital provides marketing software. Despite the impact of the pandemic on business, the group has updated that it has seen only a “minimal impact”. Its Software as a Service (SaaS) model provides recurring revenues from customers, which partly insulates it. The other upside is it makes scaling the business cheap. Low fixed and variable costs mean growth feeds through to the bottom line and ultimately into shareholders’ pockets.
AVEVA shares haven’t fully made up the losses from the stock market crash. They’re close to getting back to where they were though. Its problem is its exposure to oil customers and investor perceptions of the way that industry is going – down.
The company has an impressive track record though, is transitioning to a subscription model and has strong demand for cloud solutions. I think it could keep doing well for investors.
If you think the UK had no good tech stocks then I think you’re wrong. It does. They may not be household names like Amazon and Facebook, but they make serious money and can reward shareholders.
Andy Ross owns shares in Team17. The Motley Fool UK has recommended dotDigital Group and Frontier Developments. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.