- US tech giant Apple has recently inaugurated a store on Regent Street in London.
- Generally, high inflation levels create strong headwinds for a lot of tech firms while decreasing their pricing power.
- The interest rate hikes to counter the rising inflation also impact the performance of tech stocks.
Amid the rising inflationary pressure across the globe, US tech giant Apple, which has a market cap of over US$2trillion, recently inaugurated a store on Regent Street in London. Even though Apple is a quality growth stock, which has shown resilience during recent times, not all tech stocks are enjoying the same luck.
Generally, high inflation levels tend to create strong headwinds for a lot of tech firms. Rising inflation and interest rates can often affect different tech stocks in diverse ways. Currently, inflationary pressures are creating supply chain issues across the world. Rising labour costs have also created staff shortfalls, further impacting the tech businesses.
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The operating and gross margins of the tech firms that don’t have adequate pricing power to forward the rising costs to consumers are bound to contract. The interest rate hikes to counter the rising inflation also impact the performance of tech stocks. With rising rates, it becomes tough for high-growth tech firms to borrow more and focus on business expansion.
Tech companies aren’t typically valued on the basis of short-term profits but on the basis of their future free cash flow (FCF) growth. Rising interest rates thus decrease the firm’s earnings estimates in the long run while impacting their valuations. Additionally, with the rising interest rates, the investors are incentivised to shift their money from the tech sector to the high-yield bond market.
Despite all these concerns, investors may not have to avoid tech stocks altogether. Let’s look at 3 FTSE tech stocks that UK investors can consider buying amid the ongoing inflationary situation.
Nanoco Group Plc (LON: NANO)
Tech business Nanoco Group plc comes with a market cap of £110.27m as of 12 July. On Tuesday, the shares of the company were witnessing a surge and was up by 2.92% at around 12:30 PM (GMT+1) and was trading at GBX 35.20. The company has performed significantly well over the last 12 months. Both the one-year returns and YTD have given its investors returns of 61.04% and 75.82%, respectively. However, its EPS lies in the negative territory, at 0.01.
Netcall Plc (LON: NET)
Netcall Plc is a software specialist focused on enhancing consumer experience on 12 July was trading at GBX 88.00 and was witnessing a fall by 4.35% by at 12:40 PM (GMT+1). Netcall had a market cap of £138.02m with both one-year and YTD returns giving investors return of 21.59% and 27.75%, respectively. Its EPS also lies in the positive territory, at 0.01.
Alfa Financial Software Holdings plc (LON: ALFA)
Alfa Financial Software Holdings plc is a market-leading software firm and deals in the asset financing sector. With a market cap of £458.46m as of 12 July, the shares of the company were trading at GBX 153.50 at 12:45 PM (GMT+1). Even though the company has given investors a positive return of 4.78% as of 12 July, its YTD return lies in the negative territory at -19.00%.
Note: The above content constitutes a very preliminary observation or view based on market trends and is of limited scope without any in-depth fundamental valuation or technical analysis. Any interest in stocks or sectors should be thoroughly evaluated taking into consideration the associated risks.