• The tech sector had a down month in August
  • Is the AI thematic reaching bubble state?
  • We take a look at the ASX tech winners for the month

 

Sentiment towards growth stocks got a reality check in August as traders weighed the prospect of a much slower growth in China.

At the close of month, both the Nasdaq and ASX Info Tech (XIJ) index were 2% lower.

Despite the broad selloff, Nvidia shares surged to all-time highs spurred by its revenue forecast of US$16 billion for the next quarter (from US$13.5 billion in the current).

Nvidia has been one of the primary beneficiaries of the wave of interest in “generative” AI, with big companies willing to bet their futures on AI. Many believe they will have to do so with Nvidia chips if they’re not to fall behind competition.

Google (Alphabet Inc) also hit a new 52-week high in August, solidifying its remarkable stock price rebound this year.

Google surged after unveiling a series of new AI products and partnerships in the last week of August aimed at equipping its enterprise clients with the latest AI technology.

 

AI adoption to ‘occur in waves’

Leading megacap tech names are undoubtedly in pole position to take a market leadership role in the emerging AI sector.

However, according to Cameron Gleeson of Betashares, there is still a ways to go before they can take full advantage of their position.

“Once their models are developed and deployed, they will be adopted over time and drive revenue growth,” said Gleeson.

Gleeson believes the uplift in demand for hardware like Nvidia’s chips will be far quicker than more downstream applications of the technology.

“As a result, investors might expect adoption to occur in waves, rather than all at once,” he added.

Australian companies have also been at pains to highlight their AI credentials during the local earnings season, but the reality is this story remains a US-centric one, at least for the moment, says Gleeson.

Gleeson says that while AI as a theme represents a good long-term investment, investors should have a  properly diversified basket of stocks offers that could offer upside growth, as well as provide protection in the event of a short-term pullback in prices.

“Investors shouldn’t put their eggs all in one basket and should look to build a robust core that contains diversified exposure to Australian and International equities, bonds and other assets – perhaps even including our Nasdaq 100 ETF if they want higher AI exposure,” said Gleeson.

 

Australia lags in AI adoption

Josh Kannourakis, Barrenjoey’s co-head of technology, told the AFR that local investors would find it hard to find pure play generative AI stocks on the ASX.

Kannourakis said that beyond companies like data centre provider NextDC (ASX:NXT), many local companies that brag about AI may not be tech companies at all, but rather just leveraging AI to improve their operations.

Gleeson agrees, saying that we’re not there yet when it comes to generative AI.

“Despite claims of to the contrary, Australia largely remains an AI free zone,” he said.

“True leaders in artificial intelligence are more likely to be found on the Nasdaq in the United States or the Nekkei in Japan.

“The reality is Australian companies in the space are more likely to be disrupted by global leaders than join them,” said Gleeson.

 

Here are the top ASX Tech Winners for August 2023

On the ASX, data centre stocks have surged over the past month on higher demand for their services. This was mainly due to clients across different sectors bulking up on their AI capabilities.

 

Scroll or swipe to reveal table. Click headings to sort.

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4DS Memory (ASX:4DS)

4DS continued its run up on the back of its recent breakthrough, where it had successfully incorporated its ReRAM memory cells into the imec megabit array.

The company has also validated that its 4DS Interface Switching ReRAM technology is transferable from fab to fab, and demonstrated a fully functional megabit array.

Now read: 4DS is an Aussie semiconductor innovator. And it’s having its best day in memory

 

Frugl (ASX:FGL)

The retail intelligence company that analyses grocery data has been rising since announcing a new managing director.

The company announced in August that Kenny Woo, currently Non-Executive Director of Frugl, will assume the position of Executive Managing Director immediately.

Woo is an experienced technology start-up entrepreneur with a proven track record.

For 10 years he served as the founder and Managing Director of Easy Plastic and Facilipack Industries, a manufacturer of disposable food packaging specialising in the extrusion and thermoforming process.

 

Bravura Solutions (ASX:BVS)

The wealth management software company rose despite reporting lower revenue and higher operating costs in FY23.

The company told the market that this trading performance has driven the requirement and urgency for change, which has resulted in a new CEO, chair and refreshed board joining Bravura in the second half.

The market was also impressed after independent non-executive chairman, Matthew Quinn, recently bought U$127k worth of BVS stock.

 

EML Payments (ASX:EML)

EML was on the rise last month after revealing that it’s beaten guidance for FY23, achieving $254.2 million in revenue (up 4% on the highest tier estimate provided to the market), resulting in an underlying EBITDA of $37.1 million.

The final result isn’t too spectacular, but EML says it is still delivering a statutory net loss after tax of $284.8 million, driven by $258.9 million after tax impairment of PFS Group and Sentenial acquisitions.

 

Audinate (ASX:AD8)

The audio visual solutions company delivered record revenue growth and profit for the year.

Revenue increased 40% on pcp to US$46.7 million.

Bottom line EBITDA was $11 million, up 156.4% on FY22.

The company achieved a milestone net profit before tax of $1.4 million, vs $4.4m loss in FY22.

 

Energy One (ASX:EOL)

The energy sector focused tech company jumped after announcing that it has received a non-binding proposal from a global investment firm, STG.

STG wants to buy EOL at $5.85 per share in cash. The stock is currently trading at $5.36.

 

Dicker Data (ASX:DDR)

The data centre company reported first half revenue of $1.107bn, up 5.3% on pcp.

Bottom line NPAT of $54.1m was up 7.8% on pcp.

Dicker says the highly-diverse nature of the company’s vendor and technology portfolios enabled it to offset declines in other segments.

But CEO David Dicker conceded that the current market is challenging.

“We performed well in the first half of 2023. Gross sales are up over 9%, despite a challenging market where traditionally strong segments, such as devices, went into decline.”

 

Next DC (ASX:NXT)

The data centre stock reported that revenue came in above guidance, up 25% to $362.4 million.

Underlying EBITDA was up $24.6 million, up 15% on pcp.

Looking ahead to FY24, NXT says total revenue in the range of $400 million to $415 million (versus FY23 of $362.4 million) is expected.

 

 

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