A tipping point in tech

Detractors might claim its moment has passed, but the tech sector is entering a massive growth phase that investors can’t ignore, writes Jesse Gamble

A tipping point in tech

Technology stocks dominated other sectors last year, prompting some investors to ponder: “Is the tech trade over? Is it time to pounce on the next big thing?”

Selected technology stocks directly related to the global shift to working from home certainly had their moment to shine, while others were pulled along in a wave of undue speculation. We have seen many market pundits declaring this the end of the technology trade, urging investors to clamour for value stocks.

However, the actual technology sector is just beginning a massive growth phase that every investor should explore. The innovation unfolding within technology today is multiplicative, not merely additive, as improvement in one technology leads to improvement in another. The growth in the next five years will not be a mirror image of the growth during the last five years. The next decade is poised to be transformational as several critical technologies achieve escape velocity.

While Donville Kent is geographically agnostic between Canada and the US, most of the tech companies grabbing our attention are listed in Canada. The following are our top picks across various tech verticals.

E-COMMERCE. Wishpond Technologies (WISH.V) provides digital marketing solutions and cloud-based software to assist SMEs with a range of marketing initiatives, including lead generation, sales conversion and analytics. The company achieved record quarterly revenues, with 73% year-over-year growth in the second quarter of 2021 driven by strong organic growth and contributions from the acquisitions of Invigo and PersistIQ. 

FINTECH. Nuvei (NVEI.TO) is a global payment technology partner with a proprietary platform that provides seamless pay-in and payout capabilities, connecting merchants with customers in 200 markets worldwide. The company provides support for more than 470 local and alternative payment methods and nearly 150 currencies and 40 cryptocurrencies. Its revenues skyrocketed by 114% in Q2, driven by a 146% increase in the total dollar value of transactions processed by merchants. Nuvei recently announced the acquisition of Simplex, a payment solution provider for cryptocurrency.

 DIGITAL ASSET MANAGEMENT. Media-Valet (MVP.TO) offers the largest global footprint of any digital asset management solution. In Q2, the company increased revenues by 29%, and 90% of that came from monthly recognition of annual SaaS subscriptions. MediaValet has a diverse annual recurring revenue base, with no sector representing more than 12%, and its pipeline is growing rapidly. Consolidation in the space suggests MediaValet would be a strong acquisition target based on product growth rates.

 HEALTHCARE. Vitalhub (VHI.V) provides software for healthcare providers to manage e-health records, patient flow and case management. Revenues soared by 111% (80%of which is recurring) in Q2. The company recently announced the acquisition of Alamac, a data analytics business focused on patient safety, patient plans, patient outcomes and patient flow – its 11th acquisition since 2017. Vitalhub has received conditional approval to uplist to the TSX.

 CYBERSECURITY. Plurilock (PLUR.V) offers identity-centric cybersecurity for today’s workforces, enabling organiza-tions to operate safely and securely while reducing cybersecurity friction. The company received orders ranging from $140,000 to  $1.9 million in July and August across a variety of clients, including NASA, the US Department of Defense, a California state retirement manager and a leading overseas financial institution.

 VIRTUAL REALITY. Urbanimmersive (UI.V) is a SaaS business management solu-tion providing mission-critical solutions to visual content providers in the real estate market. Using cutting-edge 3D and video-conference technologies, Urbanimmersive’s solutions enable real estate agents to create a virtual open house. The company just acquired real estate photography agencies EGP Technovirtuel, Graphique ID Solutions and La Clique Mobile.

We have entered an era where companies literally cannot operate without software. These business models are superior to almost any other business model out there. They are asset-light, sticky, scalable and high-margin. If you want to outperform and achieve outsized returns, prioritize investing in markets that are growing exponentially.

When it comes to digital innovation, victory goes to the swift. At Donville Kent, we are excited to continue finding, researching and ultimately investing in the best innovations over the next decade. Big companies start as small companies, and we will keep focusing on finding the next great invest-ments in the small-cap space. 

Jesse Gamble is a senior vice-president and portfolio manager at Donville Kent Asset Management, where he co-manages the DKAM Capital Ideas Fund with founder Jason Donville.

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