The past year has been a challenging period for UK technology stocks. The sector has diverged from buoyant UK blue chips due to the perceived threats of AI-induced disruption. This underperformance has been regardless of generally positive trading news, and larger cap software & services companies have performed significantly worse than their smaller brethren. Takeovers have continued to pick off the remaining companies while the IPO market has been effectively shut, resulting in a significant reduction in supply; ca.£38bn has been removed from the software and services sector since the COVID-19 pandemic began – which is equivalent to the market capitalisation of the remaining companies. Given the positive trading news, generally healthy balance sheet positions, supply reductions, and with small cap software & services companies now hovering around their pandemic-period lows, we believe the sector warrants a closer look.
January trading updates continued to be positive, following the generally healthy updates in 2025, once again despite the cloudy economic and geopolitical backdrop.
We examined 104 trading updates and earnings announcements during January on UK tech-related stocks of all sizes, the vast majority of which are small caps. For the purpose of this analysis, our universe is broadly defined and includes IP-driven business across a range of sectors (excluding drug discovery). Based on commentary (including profit beats/misses, as well as new business wins and outlook statements), we estimate that about half of these announcements resulted in improvements to the outlook for the individual businesses, compared with a quarter that saw decreases. This positive mood has continued into February.
Following our analysis in 2025, we have begun quantifying these data, as shown in the graph below. On a trading or results announcement, we allocate a +1 for a beat and a -1 for a miss, with similar for the share price reaction and the perceived outlook. The numbers are aggregated on a quarterly rolling basis, since many companies release trading news each quarter.
