ASX tech shares have outperformed this year. They could have further to run as the Government unveils its $800 million digital cash splash.
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Technology shares on the ASX, and across the globe, have widely outperformed the broader market returns this year. That’s led some analysts to speculate that tech shares have rallied too hard and too fast. And, indeed, over the past few weeks, many technology shares have given back some of their gains, though most of the big names are still well up for the year.
But with new funding pouring in from both the private and public sectors, the recent correction could be short-lived, and tech shares could again run much higher.
What new funding is the Government providing?
Today, Prime Minister Scott Morrison is unveiling the fine print on $800 million of new government spending intended to boost Australia’s technology sector and help lift the economy out of its COVID-19 recession.
Much of the money is earmarked for the Government’s own agencies. According to the Australian Financial Review, $257 million will be used to “improve access to government services by expanding the Digital Identity Program”.
Another $420 million will go towards combining the Australian Business Register and the 31 registers administered by ASIC, “allowing businesses to quickly view, update and maintain their business registry data in one location”.
That leaves some $120 million which “will be allocated across more than a dozen new initiatives designed to help business adapt to technology.”
The rapid adoption of technology by businesses and households since social distancing and lockdowns became a reality just 6 months ago isn’t going to fade away. In fact, as the Government’s new $800 million tech spending program demonstrates, it’s only likely to keep speeding up.
This should benefit most of the well-run tech shares on the ASX.
One that I believe looks particularly well-placed to ride the tech boom, and grab a slice of the government’s latest cash splash (either directly or indirectly), is Appen Ltd (ASX: APX).
Appen develops human-annotated training data for machine learning and artificial intelligence. Though no information has been released, to my knowledge, its Speech and Data Collection business looks well-aligned to assist with the Government’s $257 million improvement package for the Digital Identity Program.
Appen’s share price is up 52% year-to-date.
Though gaining strongly today, Appen’s share price is still down 22% from its 26 August all-time highs, offering a potentially lucrative entry point.
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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Appen Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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