The FTSE 100 isn’t known for its technology stocks. Its largest sectors are consumer staples, financials, and energy. In fact, technology is just 1% of this large-cap index.
At first glance, investors looking for exposure to this fast-growing sector might be disappointed. But looking deeper, there are a handful of tech-focused Footsie shares that are classed in the industrial or consumer discretionary sectors.
I’d buy this FTSE 100 security giant
For instance, BAE Systems (LSE:BA.) is best known as an aerospace and defence company. But technology is at the heart of this growing business. One area where it excels is in cybersecurity.
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Cybercrime is a significant and growing threat to individuals, businesses, and public organisations. It costs the UK billions of pounds and threatens national security.
As a leading supplier of cybersecurity solutions and digital defences, BAE is well-placed to profit.
Investing for the future
Artificial intelligence is likely to quicken progress by both attackers and defenders. That’s why it’s important to be at the forefront of technology. As such, it’s encouraging to see that BAE has invested £5.1bn in R&D over the last three years.
By advancing and leveraging its technology, it could remain competitive for years to come, in my opinion.
Bear in mind that the business is subject to geopolitical uncertainties and a change in strategic direction by its largest customers could impact long-term projects.
That said, it offers a robust operating model and strong balance sheet. Profits have grown by over 10% a year over the past five years, and look set to continue on that trajectory.
Discovering tech giants
RELX (LSE:REL) might not be a household name, but it’s arguably one of the UK’s biggest tech companies and success stories. It invests £1.2bn a year on information technology to help provide analytics and decision tools to customers in over 180 countries.
With a market capitalisation of over £60bn, it’s now the ninth-largest company in the FTSE 100.
One reason why it’s not typically known as a tech company is because for years it was a publishing and media business. In recent decades it has transformed into a leading data-focused company that combines content with sophisticated analytics.
I like this Footsie stock as it’s made up of multiple subscription businesses. That means repeat earnings. It also generates lots of cash and offers a high return on capital employed.
AI risks and rewards
Artificial intelligence has been a key theme for 2023 and is likely to dominate over the coming decade. If executed well, AI could transform this business further. But risks remain and the picture is still uncertain.
Hypothetically, if its data was in the public domain, then generative AI might have had a negative impact on the business. But much of its data and analytics is owned in-house. It’s also somewhat protected by operating four very diverse business areas.
Recent trading shows strong momentum with both sales and profits growing steadily. Overall, I’d describe it as a fine example of a quality growth stock.
Both BAE Systems and RELX jump to the top of my list for tech-focussed UK stocks. And if I had spare cash in my Stocks and Shares ISA, I wouldn’t hesitate to swoop in and buy both today.
