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Why I’d buy and hold these 3 ASX tech shares for the next decade

Matthew Donald
graphic image of cloud computed and data storage

Tech shares have skyrocketed in the past 12 months, but is this growth sustainable?

Let’s explore 3 top ASX tech shares that I think will be around for the next decade.

Xero Limited (ASX: XRO)

The company offers cloud-based accounting software to small- and medium-sized enterprises.

In its first-half FY20 investor presentation released to the market in November 2019, Xero announced growth of 478,000 subscribers in 12 months to 2.057 million.

The company’s subscription-based model is working well, with $175 million growth in annualised monthly recurring revenue to $764 million.

Its international expansion is also going well, with Xero reporting subscriber growth in UK, North America, and Asia and South Africa.

Xero helps small businesses become more efficient. I believe the market is appreciating the potential of this tech stock and as a result the share price has exploded up 88% over the last 12 months. I believe the price should continue to see gains over the next decade.

Appen Ltd (ASX: APX)

Appen “is a global leader in the development of high-quality, human annotated datasets for machine learning and artificial intelligence” according to its website.

Artificial intelligence (AI) is expected to deliver huge growth. In its most recent report into the AI market, research firm Tractica forecasts that the annual global revenue for AI products and services will grow from around US$9.5 billion in 2018 to an expected AU$118.6 billion by 2025.

But how is Appen going in the AI industry? Well, if the share price of this tech share is any indication, its performance is impressive. Appen shares have soared 53% in the past 12 months.

On 18 November 2019, Appen announced a full-year earnings upgrade. The revised underlying earnings before interest, tax, depreciation and amortisation is estimated to be in the range of $96 million–$99 million (assuming A$1=US$0.74), which is up from $85 million–$90 million in the previous guidance. Most noteworthy, the improvement is largely driven by an increase in revenue and margins.

AI is helping people and organisations around the world become more efficient. With explosive growth in the industry, holding this tech stock for the next decade could reward investors handsomely.  

Nextdc Ltd (ASX: NXT)

NEXTDC will benefit from the meteoric rise of cloud computing. It has data centres in Melbourne, Perth, Sydney and Brisbane, which will help the company meet demand for cloud services.

The company has also opened offices in Singapore and Japan; however, NEXTDC hasn’t announced expansion plans just yet because it is currently investigating the opportunity in these markets. An update may be provided when the earnings are released later this month.

In the past 12 months, the NEXTDC share price has increased by 14%. The company’s revenue increased 11% in FY19, and customers increased from 972 in FY18 to 1,184 in FY19, which represents customer growth of 22%. In my view, this demonstrates the demand for data centres and may boost its financial performance over the next decade. 

Foolish takeaway

I believe there is still significant growth in tech stocks as more individuals and businesses embrace change. An investment may reward investors with large capital gains over the next decade. 

The post Why I’d buy and hold these 3 ASX tech shares for the next decade appeared first on Motley Fool Australia.

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Motley Fool contributor Matthew Donald has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Appen Ltd and Xero. 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.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020