Loads of UK shares like Barclays and Rolls-Royce have loved explosive returns in 2024, climbing by 60% or extra. Nevertheless, not all shares have been so lucky. In some circumstances, lacklustre returns are considerably justified because the underlying enterprise struggles to remain afloat. However in others, momentary headwinds have dragged valuations into bargain-buying territory.

That actually appears to be the case for the UK IT infrastructure sector. Firms like Kainos Group (LSE:KNOS) and Computacenter (LSE:CCC) at the moment are buying and selling at traditionally low multiples because the sector has been slowing all through 2024. Nevertheless, this cyclical downturn may quickly be coming to an finish. And when paired with an anticipated rebound in IT and AI spending subsequent yr, 2025 could possibly be a welcome return to double-digit income and earnings enlargement.

What’s occurring with digitalisation?

With financial situations turning bitter lately, budgets throughout the private and non-private sectors have been minimize. Firms and authorities companies have been reining in non-critical spending, awaiting each political and financial readability. And that’s a headwind each Kainos and Computacenter have needed to endure.

Each corporations specialize in serving to prospects automate and digitalise operations, with Kainos leaning extra in direction of the software program facet of the equation, whereas Computacenter focuses totally on {hardware}. Demand for IT techniques, like networking and cybersecurity, has remained strong. And Kainos’s in-house effectivity plugins for the Workday platform are additionally nonetheless having fun with rising demand from shoppers.

Nevertheless, past this, digitalisation spending is at present weak as prospects concentrate on chopping prices wherever doable. In consequence, regardless of some brilliant spots in earnings, the general efficiency for Kainos and Computacenter in 2024 hasn’t been nice. And consequently, the shares of those IT corporations are down 12% and 19% during the last 12 months, respectively. By comparability, the FTSE 100 has jumped nearly 11% over the identical interval.

A turnaround alternative in 2025?

Whereas present efficiency leaves a lot to be desired, that might all change subsequent yr. Political uncertainty from the early basic election and subsequent October Funds is now largely gone. Rates of interest are anticipated to proceed falling all through 2025. And with financial development forecasts wanting more and more bullish, digitalisation spending could possibly be set to get better.

Particularly, UK AI spending is predicted to rise significantly. Each Kainos and Computacenter are positioning themselves to capitalise on this tailwind. It’s a pattern that different friends like Softcat have additionally recognized, suggesting an industry-wide expectation of upper development within the second half of 2025 and past.

Clearly, there’s no assure of the precise timing of this cyclical turnaround. And traders might have to attend longer than anticipated if the AI expectations fail to materialise subsequent yr. Nevertheless, the long-term demand for effectivity by expertise isn’t prone to disappear quickly. And with ample money on their steadiness sheets, each Kainos and Computacenter look greater than able to ready out the storm.

That’s why I’ve already added Kainos to my portfolio, and I’m fastidiously contemplating including Computacenter as effectively.