Are ASX 200 tech shares staging a comeback?

The biggest tech companies on the ASX have rocketed higher over the past two trading days.

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Key points

  • ASX 200 tech shares have widely outperformed the benchmark since Monday
  • Higher interest rates have increased the present cost of tech companies, often priced with future earnings in mind
  • Investors are hopeful that the RBA and other global central banks may not need to lift rates as aggressively as feared

S&P/ASX 200 Index (ASX: XJO) tech shares are enjoying a welcome lift these past two trading days.

The ASX 200 is up 5.3% since Monday's closing bell. But the S&P/ASX All Technology Index (ASX: XTX) – which also contains some smaller tech shares outside of the ASX 200 – leapt much further, gaining 9% over the same period.

Year to date, however, the All Tech Index remains down a painful 31.3%.

How have these ASX 200 tech shares stacked up?

Turning to some of the biggest and best-known names, the Block Inc (ASX: SQ2) share price has gained a whopping 11.2% since Monday's close.

Like most tech companies, the global payments company, which acquired Afterpay in January, has struggled amid fast-rising inflation and interest rates. Since commencing trading on the ASX on 20 January, Block shares are down 46.3%.

Another ASX 200 tech share leaping higher this week is accounting software provider Xero Ltd (ASX: XRO). Xero shares are up 10.2% over the past two days. But like Block, the Xero share price is still down a sharp 46% in 2022.

Up next, shares in WiseTech Global Ltd (ASX: WTC) have surged 12.7% since the end of trading on Monday. The company, which provides cloud-based software solutions for the logistics sector, is now only down 2.9% for the calendar year.

The final ASX 200 tech share on our radar today is administration services company Link Administration Holdings Ltd (ASX: LNK). Link shares are up 11% over the past two days. The stock received an extra boost today on news that Dye & Durham has come back with a fresh takeover offer for parts of the company's business. However, Link shares remain down 43.9% in 2022.

What's driving the outperformance?

ASX 200 tech shares have been outperforming in line with their peers on the NASDAQ. The tech-heavy US index closed 3.3% higher yesterday, bringing its two-day gains to 5.7%.

Many tech companies are priced with growth in mind. Meaning investors pay more for shares today in hopes the tech companies will be earning significantly more revenue a few years down the road.

But as interest rates ratcheted sharply higher this year, so too did the present cost of those future earnings.

The past two days of reprieve have come as signs emerge that a series of rate increases in the US, the world's biggest economy, are having some impact on slowing the pace of inflation. That could mean the US Fed won't need to hike rates as aggressively as the market has priced in.

Here in Australia, ASX 200 tech shares received an extra boost from the Reserve Bank of Australia (RBA) yesterday. That came after the central bank lifted rates by 0.25% rather than the 0.50% investors had widely expected.

Getting back to our question then, are ASX 200 tech shares staging a comeback?

Well, in the short-term they obviously are.

Whether that's sustainable or more of a bear market bounce will largely depend on those pesky inflation figures over the coming months.

If the RBA and global central banks can ease off their aggressive tightening path, well-positioned, beaten-down tech companies will be among the big beneficiaries.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Link Administration Holdings Ltd, WiseTech Global, and Xero. The Motley Fool Australia has positions in and has recommended WiseTech Global and Xero. 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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