For the best part of 2022 investors could have been forgiven for thinking technology stocks only went down.

​From a previous sea of red, some green shoots have begun to emerge in technology stocks marking a notably positive beginning to 2023. Several factors contribute to this shift, including speculation regarding the US Federal Reserve’s potential abandonment of its rate-raising strategy, mounting pressure on businesses to streamline expenditures and demonstrate a path to profitability, and the pervasive belief that artificial intelligence (AI) will dominate the global stage. Consequently, the downtrodden tech sector is now enveloped in an atmosphere of optimism.

When you think of large US tech generally the FAANG acronym comes to mind and these companies have been some of the bigger market movers, bolstering US markets forward.

For those unaware, the original acronym FANG was created around 10 years ago by Jim Cramer (I guess he does get some stuff, right?) when he referred to the dominance of Facebook (NASDAQ: META), Amazon (NASDAQ: AMZN), Netflix (NASDAQ: NFLX) and Google (NASDAQ: GOOG). Since then, Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT) have been welcomed to the group, Netflix was cut and now a more appropriate acronym has emerged: MAMAA. Additionally, after its recent rise, Nvidia could be considered an acronym candidate.

MAMAA is made up of the newly named Meta Platforms (formerly Facebook) Amazon, Microsoft, Apple and Alphabet (ex Google). This basket of shares has had an incredible 6 months with investors questioning whether it is too good to be true and if this is the beginning of a new bull market.

Leading the pack is Meta Platforms, showcasing an impressive surge of over 120% in the past half-year, rebounding from the broader downturn experienced by the MAMAA group. Meanwhile, the other major players have also enjoyed a prosperous period, with Amazon (+36%), Microsoft (+33%), Apple (+27%), and Alphabet (+31%) all demonstrating noteworthy gains. It is crucial to recognise that these companies collectively possess a market capitalization exceeding $8 trillion, accounting for nearly one-third of the entire Nasdaq index. Consequently, when these entities experience an upward trajectory, they significantly impact the index and potentially distort the overall perception of the technology share market.

Furthermore, it would be remiss not to acknowledge the prominence of NVIDIA Corporation (NASDAQ: NVDA). As a semiconductor behemoth, it is poised to join the ranks and further complicate the aforementioned acronym. Boasting a market capitalisation just shy of US$1 trillion, NVIDIA has witnessed an extraordinary surge of over 120% in six months. Notably, it experienced a staggering increase in market capitalisation of US$184 billion within a single day, owing to the surge in demand for artificial intelligence and the heightened anticipation of increased earnings.

Enough about the US though, has this enthusiasm for tech translated to some of the ASX tech favourites?

Continuing the trend of acronyms, a few years back, the term “WAAAX” emerged as an attempt to classify Australia’s most successful technology stocks. The WAAAX group, comprised of WiseTech Global (ASX: WTC), Afterpay, Altium (ASX: ALU), Appen (ASX: APX), and Xero (ASX: XRO), has experienced a blend of outcomes since the formation of this quintet. Notably, Afterpay was acquired by the US-based company Block (ASX: SQ2; NYSE: SQ) in August 2021, a development that could potentially symbolise the pinnacle of the post-pandemic surge in cash-intensive technology stocks.

So with the ‘A’ of Afterpay gone, how have the remaining WAAX companies performed recently?*

WiseTech Global, a provider of software solutions to the logistics industry has mirrored the performance of US tech counterparts up over 40% in the past 6 months. This is nothing new for WiseTech though, with a 5 year price return of 373% equivalent to a 5 year compound annual growth rate (CAGR) of 36.6%!

WiseTech has seen its revenue growth return after a difficult period through the pandemic reporting an organic increase of 35% in the first half of 2023 and converting that into a 52% increase in free cash flow compared to the prior period. At the time of writing, WiseTech is trading at a 12 months price to sales multiple of 29 as of the end of March 2023, which is at the higher end of technology valuations.

Unfortunately for Altium shareholders the company hasn’t enjoyed the same price appreciation that WiseTech has experienced, relatively flat for 6 months.

Altium is in the business of development and sale of computer software. The company lays claim to some of the MAMAA businesses as customers as well as Tesla (NASDAQ: TSLA), Spacex and NASA. Altium has emerged from declining revenues during the early stages of the pandemic to now showing growth in the top line again. In its 2023 Half-Year results presentation the company displayed an increase in revenue of 17% compared to the prior corresponding period as well as 30% growth in profit after tax.

While these are solid numbers it would appear that a lot of this is baked into the current valuation.

At time of writing, Altium currently trades at around 14 times its last 12 months revenue which is down from a 5 year high of 24 times at the end of December 2021 and off a low of 10 times in March 2020.

The second lot of the A’s, Appen’s 6 month increase of 25% while positive, will do little to relieve long term holders of their pain.

Zooming out you get a better picture of how the AI data labelling business has performed with a 5 year price decline of over 70%. Appen has seen its revenue and gross margins decline, taking the share price with it.

Perhaps the recent rebound is the start of a turn around for Appen, however the company might be swept up in the momentum of AI-mania. Time will tell.

Appen recently completed an equity raising with the proceeds to be used to fund one-off costs associated with a cost reduction program and provide support for its balance sheet and working capital. Like many tech businesses, Appen has seen the light and is focussing on cost reduction and claimed to have identified ~$10 million of cost savings in its 10 May 2023 announcement.

Finally, the X of WAAX being Xero.

The accounting software company’s shares more than halved during the 2022 calendar year, dropping from a peak of $146 in January and falling into the $60’s in November. Hindsight shows that the end of 2022 would have been a great time to buy with the share price appreciation over 50% to be the best performer of the group to date. Like Appen, Xero has shown a focus on cost cutting with their new CEO Sukhinder Singh Cassidy announcing in March 2023 that they would be cutting staff and streamlining Xero’s business.

This was followed by their 2023 earnings results which showed revenue growing by 28% and free cash flow increasing by $100 million to $102 million.

Xero did however report a net loss of $113 million up from a loss of $9 million in the prior period as Singh Cassidy and her team wrote off a number of previous acquisitions.

In the battle of acronyms, it seems that MAMAA could surpass WAAX in terms of performance, with the US-based businesses all experiencing growth. However, some of the ASX-listed companies have still demonstrated commendable share price appreciation. As FAANG transformed into MAMAA, it raises the question: if this heralds the dawn of a new bull market, could we anticipate the emergence of fresh ASX acronym contenders?

Outside of the WAAX group there have been some other technology companies that have had great price movement over the last 6 months.

NEXTDC Limited (ASX: NXT), a provider of data centre outsourcing solutions has seen its share price grow 33% soaring above $12 per share well off its 52 week low of $8.22. Designer and manufacturer of electronic equipment Codan Limited (ASX: CDA) has doubled its price over the same period following a positive trading update in January. Finally, Weebit Nano Ltd (ASX: WBT) has had a remarkable increase in price of 78.8% which is impressive given the business has no revenue as of 31 December 2022 or cash receipts within the March 2023 quarter.
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While one swallow doesn’t make a summer, the last 6 months have been welcome relief for some tortured tech investors. As the nightmare of 2022 is beginning to disappear into the rearview mirror, is there a sustained bull market on the horizon? Or perhaps a trap for those tech inclined investors who are just seeking some relief in the rally? Either way, we’ll only know in hindsight but it is encouraging to see that after a significant sell off there is some life in the sector and it’s not completely isolated in America.