2020 continues to be a wild ride for investors in ASX tech shares. The Afterpay Ltd (ASX: APT) share price continues to surge towards the $100 per share mark.
That’s an incredible feat for a buy now, pay later company that listed in June 2017 for just $1.00 per share with a market capitalisation of $165 million.
As at Friday’s close, Afterpay now has a market capitalisation of [$25.6] billion and is trading just shy of an all-time high. However, it’s one of many ASX tech shares that I think could be worth a look despite lofty valuations.
Why I’d buy ASX tech shares at all-time highs
I think you really have to believe in the growth story and macroeconomic environment to buy ASX tech shares right now.
It’s true that the relative valuation metrics look bad. For instance, the Xero Limited (ASX: XRO) share price has a price to earnings (P/E) ratio of [4,791].
However, that hasn’t stopped investors from buying into the accounting software provider. The Xero share price is up [27.6%] this year and is steaming ahead of the S&P/ASX 200 Index (ASX: XJO).
It’s the same story for the Afterpay share price, up nearly 200% this year, and data centre operator Nextdc Ltd (ASX: NXT).
However, for all of the share price surges and lofty valuations, these ASX tech shares continue to climb higher.
I think the availability of cheap and easy credit is one factor. Companies are able to borrow cheaply and generate strong earnings despite current challenges.
There’s also the explosion of online demand which has been accelerated by the coronavirus pandemic. Afterpay has benefitted from strong retail sales, NextDC from offsite data storage demand and Xero from cloud accounting.
Strong earnings have followed which has convinced investors that ASX tech shares have further to run.
Foolish takeaway
I think there are plenty of challenges ahead for the global economy. I see the big test being when the extensive central bank and government stimulus support falls away.
However, it’s clear that the tech sector is continuing to kick goals. It’s true that some of these shares are trading at lofty valuations but I think the momentum factor will carry them higher.
Having shown promising signs in the August earnings season, I think the next big test will be in February as those economic supports are wound back.
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More reading
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- Brokers name 3 ASX shares to buy right now
- ASX 200 down 0.9%: Costa impresses, Harvey Norman profits grow, Appen downgraded
- 5 things to watch on the ASX 200 on Friday
- NEXTDC share price on watch after hitting the high-end of its guidance in FY 2020
Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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