When investors think of the technology sector, their minds drift to the sunny climes of Silicon Valley and the stock valuations of $1tn-plus Apple (US:AAPL), Nvidia (US:NVDA), Microsoft (US:MSFT), Alphabet (US:GOOG), Amazon (US:AMZN), Meta (US:META) and Tesla (US:TSLA). It is somewhat less likely that many UK-listed names come to mind, not helped by the belief (only partly true) that all of the decent UK tech has either been taken over or de-listed/re-listed on Nasdaq.
While perhaps the best UK-originated business, Arm (US:ARM), did eschew the UK, choosing to list in the US, cyber security business Darktrace succumbed to a US private equity offer and tech darling Blue Prism was snapped up by a US fintech, there is still a decent spread of UK-listed businesses across the four main areas of technology: hardware, software, cyber security and services. What we lack are the mega stocks, with the UK largest listed player, Sage Group (SGE), weighing in at a £13bn market cap, which makes it 250 times smaller than Nvidia or Apple.
A problem facing most of the UK technology players is that local IT spending between 2016 and 2022 has been lacklustre, growing at just 2.5 per cent annually, much lower than expectations. High research and development (R&D) and staffing costs (which drove uncomfortably high wage inflation) have saddled many UK businesses with unaffordable cost bases. There have been a lot of missed targets and the industry has been ‘right-sizing’, but it is forecast to perform a smart about-face and grow at a much more impressive 9 per cent annually through to the end of the decade. That said, much of the business executed by UK players is on the global stage, and many are leaders in their field internationally.