The Australian stock market, long dominated by financial and natural resources companies, could be on the brink of a shift as technology stocks gain momentum. While tech stocks have already emerged as the foundation of the U.S. market, recent data suggests that Australian tech companies are becoming increasingly attractive to investors. Specialty finance provider EquitiesFirst could provide a strategic avenue for investors looking to capitalize on this burgeoning Australian tech sector.
An All-Time High
In August 2024, Australian tech stocks reached an all-time high. This surge aligns with expectations of interest rate cuts by the U.S. Federal Reserve, a move that could further boost growth stocks in Australia and globally.
The recent rise of tech stocks in Australia contrasts sharply with the market’s historical composition. The S&P/ASX information technology index currently accounts for only 3% of Australian equity market capitalization. This figure is dwarfed by the U.S. market, where the “Magnificent 7” tech giants — Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia, and Tesla — dominate the list of the country’s largest companies by market cap.
The performance of Australian tech companies over the past decade presents a compelling case for their potential. A hypothetical portfolio equally weighted among seven of Australia’s best-known tech companies — WiseTech, Rea Group, Xero, Car Group, Pro Medicus, TechnologyOne, and Megaport — would have potentially yielded [CG1] returns exceeding 1,000% since WiseTech’s listing in April 2016. Those returns would be 10 times larger than the Vanguard Australian Shares Index exchange traded fund over the same period. The overall return of Australia’s technology stocks since 2016 is approximately double that of the broader market.
This outperformance has caught the attention of both Australian and foreign investors.
AustralianSuper, a 335 billion Australian dollar ($223 billion) fund, recently shifted money into equities, anticipating that artificial intelligence will drive further gains in tech stocks. The fund started the new financial year with a 3% overweight position in stocks, moving money from fixed interest and cash portfolios to expand its global and domestic equities allocation to approximately 57.5% of its portfolio.
Mark Delaney, chief investment officer at AustralianSuper, told Bloomberg, “The current tech stock boom prompted by the advance of [artificial intelligence] and cloud computing could play out in the same way as previous periods of innovation, such as the introduction of computing, the internet and mobile phones, which led to sustained appreciation of related stocks for five to 10 years.”
Foreign investors have also recognized the potential of Australian tech companies. Several Australia-listed tech firms have been acquired by overseas businesses and taken private in the last five years. Afterpay, a major Australian deferred payment service operator, was delisted in 2022 after being acquired by U.S.-based Block Inc., and software firm Altium ceased trading in August 2024 following its acquisition by Japanese chipmaker Renesas.
The trend of delistings has been significant, with 88 tech companies leaving the market between 2019 and 2023, outnumbering the 79 new listings during the same period. This pattern suggests that some overseas investors perceive value in Australian tech stocks that the local market may not fully appreciate.
Australia’s Leading Tech Companies
Despite their strong performance, some Australian tech companies have maintained a relatively low profile. However, many do have established international reach and potential for growth. Xero leads in cloud accounting software not only in Australia but also in the U.K. and New Zealand. Rea Group’s online property listing platform attracts nearly three million visitors daily, while Car Group’s auto marketplaces see 42 million monthly visits. Seek processes hundreds of millions of job applications annually through its platform.
Other notable performers in the Australian tech sector include medical imaging firm Pro Medicus, network-as-a-service solutions provider Megaport, and enterprise software company TechnologyOne. Data center operator NextDC has also garnered significant investor interest amid the global shift to cloud computing and the rise of AI.
Investors interested in public Australian tech companies face the challenge of balancing their portfolios between established sectors and emerging tech opportunities. One potential solution is equities-based financing. This approach allows long-term shareholders to use their existing equities to access capital.
EquitiesFirst specializes in this type of flexible financing. Its approach allows shareholders and investors to tap into the value of their current portfolios without liquidating positions, potentially enabling them to capitalize on emerging opportunities in the tech sector while maintaining exposure to traditional Australian market drivers.
Analyst Perspectives
The performance of Australian tech stocks has caught the attention of several market analysts.
Bell Potter has shown enthusiasm for Life360, a location technology company. Following an update revealing that Life360’s global monthly active users increased by 4.9 million to 66.4 million in the first quarter, Bell Potter retained its buy rating with an increased price target of AU$17.75.
Morgans has expressed optimism about Tyro Payments, Australia’s fifth-largest merchant acquiring bank by number of terminals. The broker currently maintains an add rating with a $1.47 price target for Tyro’s shares.
UBS analysts are bullish on WiseTech Global, the logistics solutions company behind the industry leading CargoWise One platform. UBS has set a buy rating and a $112 price target on WiseTech shares.
The rising prominence of Australian tech stocks offers potential for high growth, but also introduces new dynamics to a market traditionally anchored by financial and resources sectors.
Equities-based financing could provide a bridge for investors looking to capitalize on tech sector growth without divesting from their existing portfolios. This strategy may be particularly appealing in the current environment, where both established sectors and emerging tech companies show promise.