Dot­com boom part 2: the ‘picks and shov­els’ shares to buy

We all know Ap­ple and Google, but could these lesser-known ‘en­ablers’ pro­duce bet­ter re­turns? James Con­ning­ton re­ports

The Sunday Telegraph - Money & Business - - Front page -

The idea of in­vest­ing in tech­nol­ogy com­pa­nies will, for many, bring back painful mem­o­ries of the tech bub­ble burst­ing at the turn of the mil­len­nium. To­day, there is lit­tle of the ma­nia of two decades ago, and tech firms are mak­ing prof­its – which were con­spic­u­ously ab­sent the first time around.

Some in­vestors will have ex­po­sure to tech­nol­ogy through firms such as Ama­zon, Face­book and Google, which are pop­u­lar hold­ings in many funds avail­able to Bri­tish savers. But there is another ap­proach: in­vest­ing in com­pa­nies that make “en­abling” tech­nol­ogy, the com­po­nents and soft­ware used in many of the most ad­vanced de­vel­op­ments.

Tele­graph Money asked a num­ber of tech­nol­ogy fund man­agers to name some of their favourite stocks. There are very few quoted tech­nol­ogy firms in Bri­tain, so many of the stocks dis­cussed here are listed over­seas.

A num­ber of in­vest­ment shops of­fer in­ter­na­tional share deal­ing, although not all do so within an Isa. You may need to fill in spe­cial forms be­fore you trade.

Driver­less ve­hi­cles

Driver­less cars are es­ti­mated to be just five years away, de­pend­ing on tech­nol­ogy and reg­u­la­tion. This would dra­mat­i­cally in­crease the mar­ket for the com­po­nents re­quired. For now, much of the growth comes from “ad­vanced driver as­sis­tance systems” such as au­to­matic brak­ing.

In­fi­neon Tech­nolo­gies (Ger­man listed)

Mar­ket value: £19.5bn; last year’s pre-tax prof­its: £763m

This semi­con­duc­tor firm was tipped by all of the tech­nol­ogy fund man­agers we spoke to. It makes com­po­nents used in systems such as emer­gency brak­ing and bat­tery man­age­ment.

Hyunho Sohn, man­ager of the Fi­delity Global Tech­nol­ogy fund, said: “In­fi­neon ex­em­pli­fies a com­pany poised to gain from the move to elec­tric and au­ton­o­mous cars.

“It has a mar­ket-lead­ing po­si­tion and, as the tech­nol­ogy go­ing into each ve­hi­cle in­creases, it should see rises in sales and mar­gins.”

Ar­ti­fi­cial in­tel­li­gence and ma­chine learn­ing

The con­cept of ar­ti­fi­cial in­tel­li­gence (AI) – the abil­ity of a com­puter sys­tem to learn and adapt – has ex­isted for decades. Ben Ro­goff, man­ager of two Po­lar Cap­i­tal tech­nol­ogy funds to­talling £2.5bn, ex­plained that, as with any tech­nol­ogy, AI started out as a prom­ise with no means of de­liv­ery.

“To­day, it feels like we have that ca­pa­bil­ity. Right now the ap­pli­ca­tions are straight­for­ward, such as fa­cial recog­ni­tion and im­prov­ing search re­sults, but they will ex­pand,” he said.

Nvidia (US listed)

Mar­ket value: £75bn; prof­its: £1.9bn

Nvidia, tipped by sev­eral man­agers, could fall into a num­ber of our cat­e­gories. Its graph­ics pro­cess­ing units (GPUS) are be­com­ing in­creas­ingly im­por­tant for “vi­sion systems” in au­ton­o­mous cars, ac­cord­ing to Mr Ro­goff.

He said AI of­fered another av­enue for ex­pan­sion, as GPUS could be used to “train” AI net­works. “This is what makes AI in­tel­li­gent – the abil­ity of the net­work to im­prove by look­ing at its past mis­takes. Nvidia is the best way to play this theme,” he said.

Blue Prism (UK listed) Mar­ket value: £578m; £5m loss

This firm makes soft­ware “ro­bots” that au­to­mate tasks to cre­ate a so­called “dig­i­tal work­force”. Chris Ford, man­ager of Smith & Wil­liamson’s new Ar­ti­fi­cial In­tel­li­gence fund, said it was “one of the very few pure AI firms any­where”. He added: “It could fall into the ‘undis­cov­ered gems’ camp, de­spite re­cent share price gains. We think this tech­nol­ogy will be­come ubiq­ui­tous for fi­nan­cial firms to re­duce cost and im­prove ac­cu­racy.”

Ma­chine vi­sion

Cognex (US listed) Mar­ket value: £6.7bn; prof­its: £161m

Cognex makes “ma­chine vi­sion” systems used to scan and check prod­ucts or la­bels. Tom Ri­ley, man­ager of Axa’s Global Tech­nol­ogy fund, said the tech­nol­ogy was gain­ing ground, with “more man­u­fac­tur­ing ap­pli­ca­tions” and in­creas­ing use in lo­gis­tics.

Mr Ro­goff said: “We’re pretty sure Ap­ple and Ama­zon are cus­tomers.”

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