True blue tech: The ASX shares I'd buy to build a Nasdaq index-inspired portfolio

Tech can be a great sector to own for growth.

A man with a beard and wearing dark sunglasses and a beanie head covering raises a fist in happy celebration as he sits at is computer in a home environment.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The ASX tech share space has been a wonderful place to find high-performing businesses. There are some great companies on the ASX, and owning enough of them could make them look like a Nasdaq-style portfolio.

The Nasdaq is a US stock exchange that has a relatively high number of US tech and tech-related businesses involved.

The ASX isn't known for having large tech businesses like Microsoft, Apple, Alphabet and in the US.

But, after years of strong growth, there are some sizeable ASX shares that I'd pick for a Nasdaq index-style portfolio.  

How I'd narrow down the picks

Investments that track indices don't necessarily try to make a judgment call. When investors buy the Betashares Nasdaq 100 ETF (ASX: NDQ), they aren't necessarily making a valuation call on any individual business. Instead, it's a call on whether the whole group of companies can collectively keep doing well.

Most ASX tech shares certainly aren't trading on a cheap valuation, in terms of not having a low price/earnings (P/E) ratio.

Plenty of tech-based businesses can achieve a higher-than-average gross profit margin (because of the intangible nature of software), which means revenue growth can lead to a lot more profit growth than an industrial business could achieve.

There are a number of things I'd look for with these ASX tech shares. First, I'd want to see those businesses have good profit margins.

I would want those ASX tech shares to have international growth revenue potential because that opens up a lot more growth beyond Australia's shores.

Ideally, those companies are growing revenue at a solid pace, or have the potential to grow revenue at a strong speed in the future.

Plus, I'd hope to see those businesses have good balance sheets with manageable (or no) debt.

My preferred ASX tech shares

Four of the best ones that spring to mind are electronic PCB design software company Altium Limited (ASX: ALU), medical imagining software company Pro Medicus Ltd (ASX: PME), real estate portfolio business REA Group Limited (ASX: REA) and logistics software company WiseTech Global Ltd (ASX: WTC). I think all of these ASX tech shares would be at home in the Nasdaq Index.

I think the above four are among the highest-quality companies on the ASX.

If I were to expand the list to a few more names, I'd include TechnologyOne Ltd (ASX: TNE), Xero Limited (ASX: XRO), Webjet Limited (ASX: WEB), Siteminder Ltd (ASX: SDR) and Audinate Group Ltd (ASX: AD8).

Many of these stocks have performed strongly over the last six to 12 months. I'm not expecting the next 12 months to be as strong, but the underlying business results could be compelling, particularly if they can keep growing strongly overseas.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison has positions in Altium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Altium, Amazon, Apple, Audinate Group, BetaShares Nasdaq 100 ETF, Microsoft, Pro Medicus, REA Group, SiteMinder, Technology One, WiseTech Global, and Xero. The Motley Fool Australia has positions in and has recommended Audinate Group, BetaShares Nasdaq 100 ETF, SiteMinder, WiseTech Global, and Xero. The Motley Fool Australia has recommended Alphabet, Amazon, Apple, Pro Medicus, REA Group, and Technology One. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Technology Shares

A woman weraing a stripy t-shirt winks as she points to the decorative gold crown on her head .
Technology Shares

Goldman Sachs has added this ASX 200 tech stock to its APAC conviction list

Here's why the broker is feeling very bullish about this market darling.

Read more »

a man in a business suite throws his arms open wide above his head and raises his face with his mouth open in celebration in front of a background of an illuminated board tracking stock market movements.
Technology Shares

Guess which ASX tech stock is jumping 15% today

Investors are cheering an update on a major project.

Read more »

A woman jumps for joy with a rocket drawn on the wall behind her.
Technology Shares

Why Life360 shares can keep rocketing

Goldman Sachs has become even more bullish on the market darling.

Read more »

a man smiles broadly as he holds up five fingers on one hand and two fingers on the other hand.
Technology Shares

How to invest in the magnificent seven stocks on the ASX

Want to invest in the magnificent seven? It's easy on the ASX.

Read more »

Three analysts look at tech options on a wall screen
Share Market News

Here's how the ASX 200 market sectors stacked up this week

ASX tech shares are on fire, leading the 11 market sectors for a third consecutive week.

Read more »

A man wearing a red jacket and mountain hiking clothes stands at the top of a mountain peak and looks out over countless mountain ranges.
Technology Shares

The Nasdaq just hit a fresh all-time high. What could it mean for Aussie investors?

With the Nasdaq at fresh highs, ASX tech shares are reaping the benefits.

Read more »

A young male ASX investor raises his clenched fists in excitement because of rising ASX share prices today
Technology Shares

Life360 share price rockets 24% after smashing FY23 earnings expectations

This tech stock delivered a very strong result this morning. How strong was it?

Read more »

A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
Technology Shares

Guess which ASX tech stock is Goldman Sachs' top pick in March

This stock is the crème de la crème according to the broker

Read more »