Investors can forget Silicon Valley – London is defying tech expectations
The boss of which global software company said this last month?
“We’re particularly excited about the possibilities of generative artificial intelligence and the significant real world benefits that it can deliver to our customers.”
As a clue, shares in this company have risen by 50pc so far this year and over the past five years they have outperformed America’s mighty Nasdaq index. The answer is Steve Hare, chief executive of Newcastle-based Sage.
With a market value of £11bn, Sage is Britain’s biggest listed technology company and is doing rather well in its largest market, the United States.
I hope Steve Hare’s optimism is a pleasant corrective for readers prone to despondency about the London stock market’s purported status as a tech-free backwater.
Two reflections arise. First, although the commercialisation of artificial intelligence (AI) is uncertain as to timing and magnitude, it is already possible to draw reasonable conclusions about what types of companies are best positioned to benefit.
They will be companies that own or create large amounts of proprietary data about the industry in which they operate. AI tools can be set to work on this data to generate new insights and new efficiencies. This is why it is said in the 21st century: “Data is the new oil”.
An accounting software company such as Sage is certainly in a position to study the reams of transactions that take place on its platform and is already creating new value from them.
Next, if I am right about this, the London stock market is not as disadvantaged as its disappointing recent performance suggests. Specifically, there are a number of major British companies that create or organise valuable data.
For instance, among the FTSE 100’s top 20 companies, you could readily argue that the two drug companies AstraZeneca and GSK, and the globally significant data aggregators, RELX, London Stock Exchange and Experian, all have opportunities to make money out of data that is unavailable to any other company but themselves.
There are several others in the lower reaches of the FTSE All Share index too, but I won’t mention them by name because we might be buying them. When investors think about the likely beneficiaries of AI, their minds probably go straight to Silicon Valley – and with good reason.
But just because Britain is out of favour doesn’t mean there are no genuinely world-class British businesses winning with technology. There are. I am a career-long investor in British shares and intend to stay that way. That may mean I am prejudiced in favour of my home stock market.
But when we discuss business prospects with the leaders of some of the British companies I have mentioned above, I am always surprised by the apparent disconnect between their enthusiasm and the innovations their companies are delivering, and the moribund state of the stock market on which they are listed.
Perhaps Sage won’t be the only British company to enjoy a deserved rise in its share price. In the end, business fundamentals always outweigh poor sentiment.
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Nick Train is a portfolio manager at Lindsell Train. This article is not intended to be financial advice.
