Cerillion might look to techies to be an easy AI technical target its business model, market position and end customer knowledge give it a major moat. DotDigital and GB Group are collections of mainly less than bleeding edge technology solutions, but there is considerable value in their established market positions. GB Group is sorting itself out whilst DotDigital faces the challenge of how to keep top line growth growing in a business area that is seeing constant innovation and change, but neither looks to be facing fundamental challenges from AI.

In face of the carnage, we take a step back and remember that writing software is only part of the story.  You need to plan, develop, test, sell and maintain. AI is untested in customer support for AI and much else besides.

We have flashbacks to when Open Source became a thing and look to the SaaS transition and lessons learned and not learned.

There is value amongst these hard-hit tech software stocks, but survival and growth in the face of AI is more than about having embedded products.  It’s also about the company structure and culture, and scarily for UK investors, its code base too.

We consider the realignment of earnings multiples. After over a decade of analysts and investors assuming SaaS revenues go on forever, it’s now increasingly obvious that many software companies can and will die, and it might be messy.

Trading updates from Raspberry Pi, and news flow from Intel and Samsung, remind us that things rarely happen as smoothly or as predictably in real world tech as is hoped – particularly in semiconductors.

Computacenter’s update has confirmed George’s view on hardware sales and serves as another illustration that cash flow matters and should not be taken for granted.

Looking to the US the traditional SaaS stocks are underperforming, dragged down by the question of what AI does to them and, importantly, software pricing. No sign of the market asking these fundamental questions of the UK stocks just yet.

ActiveOps – going well but could short term brokers and metric obsessed fund managers stop this little gem from reaching its full potential

Cerillion – a pause for breath year, still well positioned, cash generative with excellent margins

GBG – it is going to be hard work but the management look to be up to the challenge

Then, looking to Autodesk, George considers changing charging / accounting models when faced with AI and difficult wider economics – doesn’t the market see right through this?

George and Ian consider Sage’s recent full-year results and where it can go from here. Its cloud-based US acquisition Intacct, has shown what can be done, but is Sage condemned to a life in the slow lane by its parochial home market’s love of yield and misunderstanding of growth.

They also ponder the challenges that the new CEO faces at Tracsis. Not least of which, in a similar theme to Sage, is its technical debt. Although it’s worth remembering its customer base, which might be more suited to a legacy approach after all.

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Rightmove’s share price reaction to management’s decision to accelerate its investment in AI suggests that the market is not comfortable with AI and is in bear case hunt mode. Looking at Rightmove, Trainline, Autotrader et al. it is clear that AI is going to make a difference, but it is not changing that many business models.

We consider Kainos’ results and George talks us through how the business has evolved before contemplating whether there will be or, perhaps can be, a budget flush coming as those with IT budgets use it or lose it in the final months of the year.

We look forward to Sage’s forthcoming results by looking at Xero’s just gone and consider how business models and routes to market have evolved, then look to the potential float of Visma next year.

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Picking up on concerns about the challenges AgenticAI from our last podcast, George highlights Forrester’s forecast that next year 40% of AgenticAI projects will be cancelled.

On UK companies we have Dotdigital and Advanced AdvT contrasting growth by acquisition styles, with a quick reflection on GBG. (Platform vs management impact vs random name based)

Trainline and the impact that AI can have to add value, with a nod to the ‘it’s just APIs’ issue.

Closing with Ian’s thoughts on attending the SETsquared Investment Futures event – the partnership of six of the UK’s leading universities for the development and funding of spin-offs. Very positive, plenty of innovation and a great session led by the LSE on finance. Most notable was the recognition that the space has challenges and that participants are solving these for themselves, creating new solutions and changing the way they work - in marked contrast to the public markets approach.

Ian and George tack away from Cisco vs Nvidia and nonsense PE comparisons and revisit ‘F’d Companies spectacular dot-com flameouts’ - the basis for Ian’s recent blog, looking for real lessons and how not to avoid post-bubble mistakes.

Key points are:

Dotcom was lots of relatively small things and a bit random. Much of the headline grabbing nonsense was for ventures with only single digit $m of funding. AI is big money spend in a relatively few areas. 

Much of the nonsense worked eventually – webvan, Pets.com and furniture.com – but maybe not Ocado. Beware of throwing away things that don’t work first time around.

Key parallels – Application Service Providers, short term fail but long-term success (as it morphed into SaaS) – will AgenticAI follow this path when it’s just too difficult at the first try? 

Big Beautiful Trade Prosperity deal – George tries to put in it some kind of context vs the scale of what is happening elsewhere. Has the UK sold its soul or did that really happen years ago?  Look to the positive and question Germany’s and France’s position.

Then Oracle – the big jump. The whole world now knows what it’s like to be a UK small-cap fund manager. The big ego tech boss with a track record of missing results declares that he has HUGE committed revenues ahead of him with limited visibility on both the final customer and the funding, sounds all too familiar  What does Larry Ellison understand by commitment anyway – probably depends on which of his six wives you ask. 

Feels a bit like Jan 10th 2000 AOL – Time Warner.  But it’s different this time – why?  Because the internet needed funding and so the bankers and brokers had been seeing the big dollar signs for several years by that point. This time Wall Street has been restrained, and analysts have frequently asked tricky questions, but all that could change now.

Looking at UK company news George highlights SThree’s concerning results, Tinybuild’s recovery, whilst Ian ponders Judges Scientific in the light of Spectris and asks why UK fund managers and analysts seem to be stuck in an analog world.

Ian questions why it takes so long for the UK market to trust and understand new tech stocks.

Results from Computacenter with George looking to the US reminding us that UK listed companies can grow globally when the fund managers allow it.

IQE’s profit warning is hardly a surprise and it now looks like AIM could be seeing another departure. So much value destroyed because a once sensible business became more about being a stock than a business.

Gamma’s results show the value of the Placetel and Starface acquisitions in Germany with their strong organic growth. The management look to be getting far better returns on their investments than the fund managers, so surely buy backs are the last thing fund managers should be demanding.

Microsoft - AI reality, talk of returns on its own investment on AI but no real idea on those of its customers. George argues that it’s the best placed and bemoans the lowly valuation. 

Meta - it's worth listening to the call just as reminder of how different the mindset and culture is to Microsoft, Nvidia, Google and Amazon.

This leads onto what is AI 2.0: What business will be built on top of the cold AI servers? What’s next for search? Perhaps we will see Zuckerberg’s virtual dreams becoming a reality.

Back to the reality of the UK market and how the FTSE 100 rise contrasts with the UK small cap tech share price declines. Just how strong is the underlying local demand for new IPOs at full tech prices?

Finally, George has a few words on the life and passing of the great Dame Steve Shirley.

Is Bytes broken? No, but its reputation has taken another beating. 

Hostelworld’s direct marketing expense reminds us why many startups sometimes feel they are just working for Google.

Reflecting on Salesforce’s recent wins with the US government, George looks back upon the Efficiency and Reform Group in the UK and whether its cost saving success will be repeated.

Visma – potential London IPO.  Parallels with Sage are inevitable. Visma has grown through acquisition but still delivers on organic growth. It does not, however, scale per the SaaS storybook. A judgement in store not just for London vs the world but PE valuations vs reality and analysis too? 

IP Group capital markets event – Ian is hugely enthusiastic and reminded that UK tech is alive and well. The presentations highlighted the scale up issue – where the UK still struggles. The comments re the Mansion House Accord should be noted by public market participants.

Dotdigital’s acquisition of Social Snowball raises the ongoing question whether the UK public market’s investors’ lack of ambition for software companies with a focus on high margins at the expense of marketing and development may condemn UK tech companies to have to play catch up via expensive acquisitions.

Updates from companies, including TPX Impact and Made Tech suggest that UK public sector now has a better sense of itself and is returning spending.

1,700 companies on AIM in 2007 was too many (polite way to say it), but 700 now is too few. 

The politically impossible bail out is not the answer, but what can be done for little cost and risk to the public purse? Perhaps if we make it more profitable for fund managers, and in particular for those with credible voices, for whom improving the quality of the businesses they invest in is a goal.  

George wants to know how you make a Staveley scale? (Other fund managers are available.)

George raises the issue of small-cap and AIM plc governance. How much does it cost, and what, realistically, can a NED actually do?  He relates a story of frustration from a NED contact.

Inevitably this leads to the RC Fornax shambles and whether fund managers know how much DD gets done by the NOMADs.

On the companies front it’s a tough market for Hays, progress for Capita and for Oxford Metrics it’s back to normal but with concerns over US university and research spending under the new regime.

London Tech Week - George has been out and about and is enthused about by the talk by Gary Turner and Steve Vamas of Xero fame.

More LSE departures - To read the eulogies you would think that Ricardo was the greater success story. Ricardo was just easy to explain and love. Spectris was a bit of an effort to understand but made the effort to grow.  Few make the observation that WSP Global, the acquirer of Ricardo, was, not too long ago, a not-too-exciting Canadian small cap that simply had ambition, execution and its home market on its side.

Molten Ventures - the ~50% NAV discount persists. It’s complicated.  It delivers NAV growth but it has a primary valuation driver, Revolut – and how do you value that?

GB Group - Whilst the revised management are getting to grips, will investors simply end up with a business model that the brokers could sell rather than one that works?

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Looking to the US, Salesforce and C3.ai results show positive momentum for AI, as of course do Nvidia’s. But investors are asking more questions and AI vs. Economic Downturn is a match that’s difficult to call.

Ian is more immediately concerned about the impact of US government actions to curtail sales into China by Cadence, Synopsis and Siemens EDA – companies which, like ASML and TSMC, you really need to understand to truly get tech.

George and Ian ponder the Pensions Investment Review. Only serious AIM/small-cap Kool-Aid imbibers would have hoped for much, so AIM/Aquis ranking on a par with a theme park near Bedford is perhaps a result.

Directing money to infrastructure/tech direct impact is an easier sell to the party/public than bailing out UK public equities.

Consider those who look upon it from the outside. This is a government that is trying to do something to stimulate growth. Something that could, or even should, be seen as a positive development.

To outsiders the failings of UK public equities and small-cap / AIM in particular are all too evident and have been for quite some time. It’s widely recognised as a market and regulatory structure that does not work as it should for investors or companies.  Perhaps that needs changing to get Rachel Reeves onside.

Grabbing the segue across to a market that has seen success on AIM, George highlights recent gaming sector newsflow and the potential for patient investors to gain from its returning health.

Gamma’s AGM statement contained comments in the UK market that led to a share price fall, although the progress in Germany is something that the market should not ignore.

Tech and defence is discussed – George and Ian reflect on the spoof potential, surely not!

IBM’s figures get George pondering the differing paths with AI for software vs IT professional services. He highlights the Asian IT services area, where growth is notably better than in the EU or North America, before looking at results from ActiveOps, GB Group and iOmart.

Ian comments on Oxford Metrics’ in-line update, Northcoders, and then Tracsis, where investors who bought into an earnings growth and digitalisation story have to work out where the UK rail system is now heading.

Ian eulogises about the Stanford AI report. It provides some encouraging data for UK tech proponents and provides insight into how AI is actually being used and what limited gains AI provides.

George focuses on the AI benchmarks issue – are they meaningful? Which leads Ian to question, given the huge scale and nature of many AI projects, whether any of the returns and benefits data that everyone craves is going to be valid.

Alphawave’s lack of guidance for 2025 is no great surprise, but in an industry as complex as semiconductors can anyone take forecasts seriously.  Ensilica’s recent newsflow suggests not. We can, however, confidently predict that the forecasts are wrong.

Kainos is steadier than it was, but do the cuts mean that it is now out of sync with the rest of the market. George looks to the global picture and raises the long-term question that faces the UK IT services business.

Accesso also looks to be regaining its poise but reminds us that it is not just hardware companies that are subject to customer and supply chain timing issues.

Cirata is growing sales but is it just the old UK small-cap trap (AIM business model) of sales before profits before fund raise. The change in sales strategy in the US keeps the focus on how this company can make and grow profitable sales.

Tiny Build looks to a busy year, with new products – is the games sector in a comeback year?

Finally, we touch upon the Stanford AI report – nearly 500 pages covering everything from models, to hardware, to costs to energy. Thankfully, concisely summarised.

Pinewood.AI and Raspberry Pi deliver – although inventory build at Raspberry Pi is an issue that must be monitored.

BIG Technologies and the broken small and mid-cap due diligence stack. Whilst there’s still an interesting business, there is a far more interesting story that highlights how share-based remuneration can be a useful pointer into the heart of a company and its management.

And Alphawave Semi which has had Qualcomm come sniffing.  Could the market be just as confused on Alphawave’s departure as it was on Alphawave’s arrival?

George has been looking at some resilient and upbeat news from smaller less well-known players SRT, Xaar and Microlise and is still recovering from the not too surprising news that Computacenter has not delivered its 20th year of earnings growth.

Gamma results have encouraged Ian and whilst enthused by Judges Scientific as a company he is disappointed by the analyst meeting – where did all the research go?

The leads to reflection on Ian’s recent blog comparing listed company micro-cap funds and VC funds, which suggests that something has gone wrong with the small-cap due-diligence / investment decision ‘stack’.  This has knock on impacts across small and mid-cap.  Is more research the answer?

Recent events have seen the US market, and US tech and smaller stocks in particular, backtrace whilst UK’s Techmark index has gone up 5% since the start of the year.  Perhaps showing its worth as a shelter in times of trouble?

George updates on recent recruitment sector news, not great, but reminds us that elsewhere individual stocks where there is management change or revitalization can be interesting – pointing to NetCall and PCI Pal amongst the small-caps and the once giant Capita, also amongst the small-caps.

Ian revisits UK electronics and electricals: Spirent, Spectris, Renishaw et al. It leaves him puzzled at their lack of interest in talking about AI. Aren’t those involved in measurement and data generation going to be the lifeblood of industrial AI and for those with semiconductor manufacturing equipment companies as customers isn’t it AI that’s driving, or at least supporting, their top line now.

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Ian looks at the strategic reasons for PINE Pinewood's acquisition of Seez and the issue of where the value really lies in AI. Should investors be calling the quality of the acquisition decision now?

This leads George onto how AI is impacting the tech services companies and to where the real AI driven growth is going to come from for the software providers.

Crash landing back onto planet small-cap, they touch on the stories which are truly AI related, like KX, and the damage that can be done to portfolios and companies when management find themselves ‘managing to the broking story’. 

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George scans the wider market and whilst somewhat downbeat on the fact that the big boys in IT services are struggling to get back to where they were before the pandemic, at least in the UK the government looks to be spending some of the money it hasn’t got on tech – giving some grounds for optimism amongst the smaller companies, including Made Tech.

Ian scratches his head on Palantir’s business model and ponders just how dependent it is on share-based remuneration and how far and how fast does its non-conformist customer base have to grow to justify 70x sales. He also considers small-cap silicon play, Ensilica, a real tech company with the wrong balance sheet. Share price movements following announcements and forecast revisions suggest that the investors and wider market might have a better handle than the brokers on how the semiconductor industry works. 

Oxford Metrics (OMG) has faced head winds as it returns to ‘normal’ after the pandemic and supply chain issues. But it also now has the opportunity in smart manufacturing.

Historically Oxford Metrics has had strong positions in relatively small global markets, the move into smart manufacturing offers the opportunity to build a significantly bigger business in an application that is at a technological tipping point.  A classic growth hardware and electronics story that needs good acquisitions and good execution.

FD Technologies (FDP) is focusing down upon its KX database business. The market looks to have picked up on the Total Addressable Market not the Serviceable Obtainable Market. Huge difference, and one that the management themselves don’t seem to have a grip on yet. On top of that its investors (or management) could well be killing the hypothetical golden goose.

If you want companies with growth valuations you have to give them the funds to drive the growth. The valuation suggests huge market opportunity, and there clearly is a significant one. However, the limited cash allocated after the post disposal distributions to drive sales suggests nothing of the sort. Tens of millions of sales and marketing will deliver exactly that in terms of revenues. Something’s got to give.

Time Stamps:
00:00 Introduction
01:15 Oxford Metrics (OMG)
07:38 FD Technologies

Sage’s share price rose 19% on the day with the market liking it more than the analysts. Much of the debate is around the cloud native growth narrative but have the company and analysts painted themselves into something of a corner?

Nvidia results get a mention. It's been the big thing in 2024 but what’s to come in 2025? Will it be the year we finally look beyond the chips?  

Discussion of the ‘future’ leads us to Deferred tax loss assets. These get recognised when the profits are probable. No probable profits mean no loss-based asset.  Crucial to small cap tech you would think but often ignored. We look to Bango, Cirata and Ocado as examples.

The pair bring their discussions to a close with a glance ahead to 2025. Will the sector continue to be driven by geo-politics? Ian dares to suggest that things might just be 'normal' and George summarises the chat with a call to action: Just get on with it!

Companies discussed include: Xero, Tracsis, Sage, Nvidia, Eagle Eye, Intuit, MadeTech, Redcentric, Snowflake, SoftCat, Intuit

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They talk about the impact of the UK Budget and then the US Election on the tech sector. AIM rallied ater the UK Budget but then gave up the gain as American institutional investors who've been buyers of UK tech this year, suddenly found a reason to go back home with tax cuts promised to US companies. 
 
As some of the larger US tech companies report, Ian and George look for more evidence of what's happening with AI and where it is on the 'hype cycle'. There's a a lot spending on Data Centres, but what's going on beneath the surface? What is being promised to customers? How sustainable are business models? Is there now more evidence of proof of concept and where the returns are going to be? 

Companies discussed include: Kainos (KNOS), TPXImpact (TPX), Triad, S4 Capital, Team Internet (TIG), Microsoft, Meta, Amazon and Google 

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Ian sees some common themes with Pinewood (PINE) and Made Tech (MTEC) results – looking at sales processes and how much more difficult it is to sell software than services, and how lines can become blurred.

George looks to the results of TCS (Tata Consultancy Services), the services behemoth and ponders an industry regaining its mojo, before considering FD Technologies (FDP) disposal and focusing on KX (AI again!).

After a quick chat about the 'Rule of 40' data in Ian’s recent blog (positive for UK but not Rule of 40 obsessives), George sums the tech sector up with a bit of poetry:

‘When she was good, she was very, very good

But when she was bad, she was horrid’
  

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They consider Gamma Communications and IQE and what some might see as the difference between a good stock and a good business.  Even though a company can lay claim to great IP and great tech, it is just as likely, if not more, that it is the position in the value chain that will determines its quality and value.  

The prospects for Computacenter achieving 20 years of consecutive earnings growth are also discussed – along with share buybacks.

George reflects on the mixed bag of news in recent UK company announcements, and they look forward to Raspberry Pi results which have the potential to upset far more than just the investor base if they don’t match or exceed expectations this coming week.

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Having reviewed Allianz Tech Trust and Polar Capital Tech Trust recently, George looks at divergent performance in the sector and the big focus and interest in semiconductors. And with so much going on but so little clarity in the sector, Ian questions whether now is the time to start looking beyond the Mag 7 for AI plays (to a Mag1000?) and finds this might require something of a whack-a-mole approach. He also discusses ASML (see recent Talking Tech Insight) and considers how, when and whether the wider semiconductor industry will follow Nvidia’s path.

Companies mentioned:
CML Microsystems, HSW Hostel World, RPI Raspberry Pi, Nvidia, Travel Tech, AirBNB, Equinox, Rackspace, Data Analytics, ThoughtWorks, Palantir

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They consider whether in the words of Robert Smith (of Vista Equity Partners) ‘‘Software tastes like chicken’ and what the success of Mark Leonard’s $80bn market cap Constellation Software as a serial acquiror of vertical market software businesses, has in the way of lessons for UK listed company investors and advisors.

They also chat about recent industry newsflow, discussing vertical market software companies, GenAI and data centres, and the market's negative reaction to Alphabet’s recent results. Over the next few weeks they look forward to the quarterly results of other big tech like Microsoft, Meta, Apple and Amazon, and wonder what they will say and commit to on AI in promises and dollars.

If you enjoyed listening to the Talking Tech podcast you might like to take a look at the accompanying Talking Tech insights.

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George has been canvassing opinions amongst the great and the good of UK tech and found a generally positive, if somewhat non-committal, view. The Labour party have been making many of the right noises, and appear aware of the problems, but we await some clarity on what they are going to do about them.

It is clear that there are going to be opportunities for UK listed tech companies, although there is the note of caution that for some it is likely to be a case of better to travel well than to arrive.

If you enjoyed listening to the Talking Tech podcast you might like to take a look at the accompanying Talking Tech insights.

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Ian waxes lyrical on Constellation Software from Canada, the vertical markets software giant that no-one has heard of. At which point AI resurfaces and they consider whether it might be AI rewriting the code to make everything cloud native after all.

If you enjoyed listening to the Talking Tech podcast you might like to take a look at the accompanying Talking Tech insights.

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With the theme of rates higher for longer equating to lower for longer, George touched on how this macro centric year of elections was effecting the growth prospects of Small Caps. Ian discussed the geo-spatial theme linking two of our stocks, Idox and Oxford Metrics, who reported recently. Both companies are on the acquisition trail and Ian and George pondered whether the more realistic prices seen lately would bring a flow of companies back from private equity and venture capital markets into the public market.

The pair looked at the similarities and differences between the customers and backers of Cisco and NVIDIA and the tendency for tech investors to buy into a trend rather than the business case when there are so many tech stocks and ecosystems to consider. Lastly they talked about the 10x over-subscribed Raspberry Pi IPO and questioned the price discovery process following the 43% hike in share price.

Companies mentioned include:
Idox, Oxford Metrics, Tracsis, RWS, NVIDIA, Cisco, Meta, Google, Microsoft, Wintel, NetScientific and Raspberry Pi.

If you enjoyed listening to the Talking Tech podcast you might like to take a look at the accompanying Talking Tech insights.

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Digitalisation has made a huge impact on the world of Domino’s Pizza and yet Cazoo has shown that being a ‘disruptor’ is not enough – you have to know what you are trying to disrupt. They then consider Shein and whether, once the issues are considered, any real analysis of the business is ever going to happen.

If you enjoyed listening to the Talking Tech podcast you might like to take a look at the accompanying Talking Tech insights.

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They also discuss the Raspberry Pi IPO – another reason to be cheerful. A London float, a good company, a growth company and litmus test for the UK equity market.

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If you enjoyed listening to the Talking Tech podcast you might like to take a look at the accompanying Talking Tech insights.

In this first episode they discuss the opportunities in motion capture, virtual reality and machine learning smart vision at Oxford Metrics, and the potential for profitable semiconductor player, CML Microsystems, to profit from next generation wireless technologies – real 5G, industrial IoT and satellites.

George ponders Indian outsourcers and the duo look at how important it is for investors to understand how software companies sell – looking at the direct sales approaches by Darktrace and Idox, and at product led growth for dearly departed Sopheon. Stuff that’s just not popular to write about but in some sectors just doesn’t get considered. Perhaps this is a clue to how so many of us got spooked.

They also consider the outlook for UK technology and small-cap. With guarded optimism.

'Our belief remains that with information, context and explanation, investors can learn to love not fear UK small cap tech. Although, as George says, it’s not a straight line...'

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If you enjoyed listening to the Talking Tech podcast you might like to take a look at the accompanying Talking Tech insights.

NB CML Microsystems, Oxford Metrics and Idox are clients of Progressive. Sopheon was a client prior to de-listing.