• Tech heavy Nasdaq has risen by almost 40% this year
  • Experts are warning against a bubble in the tech sector
  • We look at the ASX Tech Winners for July 2023

The S&P/ASX 200 Info Tech [XIJ] index was up by over 7% in July, and 40% for the year.

The Nasdaq index, the bellwether for the global tech sector, has also rallied by more than 37% in 2023.

While this was the best ever first-half gain for the Nasdaq in 40 years, the index is still 10% off from its all-time high reached in November 2021.

Tech stocks have been rallying in recent months due to two main reasons – cooling inflation and the rush towards artificial intelligence (AI).

The inflation slowdown in the US has bolstered hopes the Fed Reserve may be done with raising interest rates after the pause in July.

Lower rates generally boost the valuations of tech stocks, as a lower discount rate tends to lead to higher present values for these growth stocks.

Meanwhile, a sudden huge wave of interest in AI has also helped fuel a US$4 trillion-ish rally in US tech stocks this year.

This was sparked by the launch of ChatGPT in November 2022, which has fuelled growth for a wide range of companies including semiconductors and cloud computing.

But this tech rally we’re seeing is different from previous ones, in that it’s concentrated only in a handful of heavyweight stocks.

Nvidia,  Apple, Microsoft, Alphabet, Amazon, Meta and Tesla – collectively called The Big Seven –  make up most of the year’s gains and 30% of the S&P 500 Index’s total value with a combined market cap of around US$10 trillion.

Analysts now warn about the danger of getting caught in a rally led by so few stocks. They argue that even if just one of the seven stocks falter, it could mean an end to the current bull run.

UBS acknowledged that the segment could be in a bubble, but says it still sees more upside ahead.

“While some stocks in the sector now look expensive, and we advise investors to be selective, we believe there is still plenty of growth potential in this area,” noted UBS.

The broker added that the risk-reward is more attractive for software stocks, which are well positioned to ride the broadening AI demand trends.

“We see significant opportunities in the integration of AI ‘copilots’ in office productivity software, rising demand for big data analytics, and AI integration in image/video and other enterprise applications,” said UBS’ note.

 

Here are the top ASX Tech Winners for July 2023

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3D geospatial data company Pointerra (ASX:3DP) surged after announcing a 10-year energy utility program in the States.

Its existing customer Entergy, a Fortune 500 company, has selected Pointerra’s US EPC partners for its 10-year, US$15 billion grid resilience CAPEX program.

Software company Constellation Tech (ASX:CT1) rallied after reporting cash Receipts from sales in excess of $314k for the quarter. The company says it holds around $1m in cash at end of quarter.

The sales platform tech company Ansarada (ASX:AND) rose after reporting annual recurring revenue (ARR) growth of 42% vs the pcp.

Workplace management solutions provider Damstra (ASX:DTC) jumped after announcing a three-year agreement covering Barrick mine sites in Africa (Tanzania and Zambia). Contract value was USD $0.4m, and it will commence Phase 3 of the global rollout with Barrick.

Damstra also signed agreements with Foxleigh Mine and Stanwell Corporation, with an estimated ARR of $375k.

Droneshield (ASX:DRO) surged after announcing a record $33 million order from a US Government agency. The award consists of DroneShield equipment and multi-year services.

This latest order follows a $9.9 million order announced earlier in July from another customer among the Five Eyes community.

Cybersecurity firm archTIS (ASX:AR9) signed a deal with the Bank of Finland, an existing customer, to license NC Protect and the NC Encrypt module.

The purchase migrates Bank of Finland from the previously acquired cp.Protect offering. The contract value was $235k.

 

ASX Tech Losers for July 2023

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Cloud software company Dropsuite (ASX:DSE) fell despite reporting a 8% growth in ARR to $30.4m vs the prior quarter, and 51% vs pcp.

The company said the expansion of its global sales team over the previous six months is building a growing pipeline, and is anticipated to accelerate its growth over the remainder of 2023 and beyond.

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