UK tech stocks: my top 2 picks for explosive returns

The FTSE 100 index is booming, trading at its highest value since the pandemic. Now looks like an excellent time to add some UK shares to my portfolio. I am extremely bullish on the tech sector. Although tech companies in the UK do not rule the market like in the US, there is still a lot of potential for growth. Here are two UK tech stocks that I think look set for steady returns over the next decade.

Leading the change

Aveva Group  (LSE:AVV) has been on my watchlist for a few months now. The software firm first popped up on my radar when I was looking for tech companies with a commitment to environmental conservation. I see this as a big marker for future performance in the tech sector over the next decade.

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A large percentage of Aveva’s products focus on data management and cloud computing systems for the energy sector. Data-driven models of energy generation help optimise the supply chain, reducing environmental impact. Its £3.8bn purchase of OSIsoft looks like a move to fortify the data-management wing of the company. Aveva already works with industry leaders like BP, GlaxoSmithKline, and EDF. This is a big win in my books.

A risk is that the current energy and oil crisis could force companies to cut down on operational costs, which could affect Aveva. Another is share price volatility. A leadership shakeup in April and market concerns in September caused shares to slide dramatically. This tells me that traders are highly reactive to news about Aveva stock. Also, the company is set to release a trading update on 28 October. A positive result could cause a jump in share price.

Over the long term, this tech stock looks promising. And although shares look attractive at their current price of 3,690p, I am watching the company to gauge market reaction to the trading update before making an investment.

Booming tech stock

Cerillion (LSE:CER) has had an incredible year in the market with a return of 159% in the last 12 months. For an often overlooked FTSE AIM company, this run is a great sign for investors in the UK tech space.

The company provides customer management and billing systems primarily to the telecom industry. I am excited about recurring revenue in the software space as it denotes customer retention and satisfaction. Cerillion’s recurring revenue rose 26% in the first half (H1) of 2021. The software company has significantly expanded its global presence with an $18.4m agreement with Telesur in Suriname and Latin America. This boosted revenue from new orders by 148% to £23.6m (H12020: £9.5m).

A big concern for my potential investment is the inflated share price at the moment. At 815p, Cerillion shares are trading at a profit-to-earnings (P/E) ratio of 55 times. If a market crash were to happen, investors could flee, opting for more stable and cut-price options. Also, despite an increase in recurring revenue, it is a small percentage of the operation. Any disruption in the current deals could drop revenue in the future.

But, the company is still expanding well and showing signs of becoming a tech stock staple for my long-term portfolio. A trading update is due in November, but I would consider investing in Cerillion today to capitalise on a potential jump in prices next month.

Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

This post was originally published on Motley Fool

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