ASX technology shares could be the best shares to own over the long-term.
The best businesses of the past were ones with huge manufacturing capabilities, countrywide or global distribution networks and big advertising budgets. Economies of scale provided the best benefits.
Technology shares don’t have to manufacture their products, once they have developed their products it’s very easy to distribute it for low costs. These days most technology is distributed through the internet, which is a very low-cost method of getting the product to the customer. Tech business models seem much more attractive.
Ramping up the tech share sales doesn’t require a new factory, meaning technology businesses can benefit from rising profit margins. Over time, shareholders of technology shares could become very wealthy.
However, no business is a buy at any price. Some tech shares on the ASX are trading very expensively such as Afterpay Touch Group Ltd (ASX: APT), but these two ASX tech shares could be good long-term buys:
Altium Limited (ASX: ALU)
Altium is one of the world’s leading electronic PCB software businesses. It provides software for engineer teams that are one-man in size up to large teams. Some of its largest clients include Space X, Tesla, Amazon, John Deere and Toyota.
The company has delivered on the long-term targets that it set for itself in the past and now it’s aiming to be the clear world leader like how Microsoft dominated the Office software industry. Altium has set a target of 100,000 Altium Designer seats by the mid-2020s, which should see it be the clear world number one if achieved.
Altium is currently trading at 43x FY19’s estimated earnings.
Appen Ltd (ASX: APX)
Appen provides human-annotated training data for machine learning and artificial intelligence.
It has worked with global technology companies for over 20 years and has access to a ‘curated crowd’ of over 1 million flexible workers worldwide.
AI is a fast-growing industry that will drive the key consumer services over the next decade, Appen’s dataset is important for its customers. However, I’m not sure how defensive its earnings are with how reliant Appen is on a few key clients.
Appen is currently trading at under 30x FY19’s estimated earnings.
Appen seems to the cheapest of the ‘WAAAX’ ASX tech shares, but Altium’s revenue base seems much more diverse and it also has a clearer path to growth for the next decade. So, on that basis, Altium would be my choice over Appen.
However, Altium still isn’t trading cheaply at this stage. I’d prefer to buy it at around $20 or less.
Motley Fool contributor Tristan Harrison owns shares of Altium. The Motley Fool Australia owns shares of AFTERPAY T FPO, Altium, and 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.