The market is pricing in doom for UK tech stocks – Here’s why one major bank thinks 2026 will be different
The UK software and computer services sector has been hammered in recent years, with valuations plummeting amid economic headwinds and hype around AI that’s failed to deliver immediate payoffs for many firms.
Stocks in the FTSE All-Share Software & Computer Services index are now trading at around 20 times forward price-to-earnings, a steep discount from their historical average of about 29x and barely a premium over the broader market.
This depressed pricing suggests investors are bracing for more pain, but analysts at Investec Bank see a turnaround on the horizon. In a new report on technology sector themes for 2026, the bank argues that improving IT spending trends, undervalued growth stocks, and emerging benefits from business transformations could spark a rebound next year.
“2025 proved a challenging year for sector ratings despite generally sound operational progress,” the group said in a research note on Friday (20 February).
“Tariff volatility and AI-driven valuation deflation compressed sector multiples, particularly among premium growth stocks, even though earnings forecasts were broadly resilient.”
Signs of resilience
Investec points to signs of resilience. Despite lingering macroeconomic uncertainty, organisations are ramping up IT investments to drive operational efficiencies and digitisation.
Industry data, including from sources like Perplexity, indicates a gradual acceleration in IT spend heading into 2026 and 2027. Data centre systems, fuelled by AI infrastructure buildouts, are leading the charge, with projections showing a knock-on boost to IT services growth.
This broadening demand could benefit UK tech firms, many of which are positioned to capitalize on enterprise technology needs. “The overall backdrop points to sustained growth across regions and spend categories, underpinned by digitisation and productivity requirements,” the report notes.
A key pillar of Investec’s optimism is the attractive valuations of growth-oriented stocks. While share prices tanked in 2025 due to sentiment rather than fundamentals, forecasts remain strong, backed by pent-up demand and solid order books.
“After several years where forecast risk skewed to the downside, the balance is beginning to shift,” Investec said. “Trading momentum is improving and forecast risk is shifting increasingly to the upside.”
Several companies are also poised to reap rewards from ongoing transformation programs, which could manifest in higher margins, more recurring revenues, and better platform economics.
Investec believes the market is underestimating this potential, creating opportunities in early-stage recovery plays where even small improvements could yield big gains.
Then there’s AI itself, which Ivestec sees not as a short-term disruptor, but as a long-term catalyst. While much of the AI valuation debate centres on big US tech giants, UK firms aren’t as directly exposed.
Still, wider AI adoption could spur productivity-driven IT spending. Investec pushes back on fears that AI will outright replace software systems, emphasising their ‘mission-critical nature’.
