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2 ASX tech shares to watch closely this week

The IT sector has been a key driver in the recent rally of the ASX200 (ASX: XJO) recently. Here are two I've got my eyes on: ALU & NXT.

The information technology sector has been a key driver in the recent rally of the ASX200 (ASX: XJO) recently.

Since the start of April, the ASX technology index (ASX: XTX) has gained over 15% thanks to strong gains from large capitalisation ASX tech shares such as Afterpay Ltd (ASX: APT), Xero Limited (ASX: XRO) and Altium Limited (ASX: ALU).

Even after this recent rally, here are two ASX tech shares that are worth keeping an eye on this week.

Altium

Altium’s valuation has climbed back up around 15% since the start of the month but its shares are still significantly cheaper than what they were around six months ago.

ALU share price

Source: Rask Media ALU 1-year share price chart

Altium released some fairly underwhelming half-year results which revealed a slowdown in sales and increased costs as a result of COVID-19.

Its valuation was further compressed with the broader tech sector recently in light of increasing bond yields, but it seems that sentiment around the sector has recovered significantly since the start of the month.

At this stage, it seems these recent complications are transitory rather than being structural long-term changes to the underlying business.

The long-term growth strategy company does seem to still be intact, with Altium 365 being the latest weapon added to its arsenal. If management is able to execute well, there may be some potential network effects able to be unlocked as its value proposition grows in line with the business.

For more reading on Altium, click here to read: The Altium (ASX: ALU) share price could be in the buy zone. Here’s why.

NextDC

Another ASX tech share that’s recovered strongly over the past month has been data centre operator NextDC Limited (ASX: NXT). Its share price has also gained 15% since the start of the month and currently trades around $11.90 per share.

NXT share price

Source: Rask Media NXT 1-year share price chart

NextDC upgraded its full-year guidance on the back of reporting strong HY21 results in February.

The figures confirmed the upwards trajectory of the underlying business, which seemed to go against the fall in its valuation around the same time.

Over the half-year period, growth in data centre revenue was up 27% to $124.5 million, which was driven by a 33% increase in contracted utilisation to 71.0 megawatts (MW). Customers and interconnections were also up 16% over the period.

I like NextDC due to its competitive position and the fact it operates in a structurally growing industry. With the recent adoption of cloud-based services accelerated by COVID-19, I struggle to see how this trend would reverse or significantly slow down any time soon.

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At the time of publishing, Patrick owns shares of NextDC Limited.
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