Australian technology stocks have taken a bit of a beating recently, the team at RBC Capital Markets says, with foreign exchange risks and questions around artificial intelligence likely to remain front of mind for investors in the coming reporting season.
In a research note to clients this week, RBC said the Australian market had been caught up in the "AI euphoria risk trade, with the market seeing materially lower barriers to entry and disintermediation risks potentially impacting sales/margins over the medium long/term''
This had led to sharp down-ratings for some technology stocks over recent months, with some share prices halving over the past half year, RBC said.
They added:
We believe certain names have higher moats and are better protected, however marrying up an attractive entry point is difficult in the midst of negative macro tech sentiment and the tide running out fast.
The companies singled out as having a decent moat were Pro Medicus Ltd (ASX: PME), Technology One Ltd (ASX: TNE), REA Group Ltd (ASX: REA), and Wisetech Ltd (ASX: WTC).
On the risk front, some companies were facing increasing earnings risks from the higher Australian dollar, including Pro Medicus, Hansen Technologies Ltd (ASX: HSN), and Megaport Ltd (ASX: MP1).
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Good value stocks abound
While RBC has flagged plenty of risks in the sector, they also have outperform ratings and solid price targets on eight stocks.
For Technology One, RBC says their UK growth narrative is continuing, and the company "has demonstrated the best AI capabilities we've seen to date amongst our coverage with its new PLUS Ai platform being released in market this year with monetisation into 2027''.
RBC has a price target of $32 on Technology One shares compared with $25.62 currently.
For Wisetech, they have a price target of $100 against $59.01 currently, saying the take-up of the company's new commercial model "should see positive tailwinds in 2H26".
RBC has a price target of $155 for Xero Ltd (ASX: XRO) shares, compared with $94.37 currently, saying the demand environment was "healthy" and that there could be a catalyst for a rerating in February, when the company demonstrates its Melio product offering.
On the data centre front, RBC says NextDC Ltd (ASX: NXT) is benefiting from the AI and cloud computing boom, adding that "hyperscalers continue to materially increase their capex on data centre-related investments, evidence of a healthy demand environment''.
RBC has a price target of $20 on NextDC shares compared with $13.21 currently.
And on much the same theme relating to data centre demand, it has a price target of $90 on Macquarie Technology Group Ltd (ASX: MAQ) compared with $69.60 currently.
For Hansen Technologies, RBC has a price target of $6.25, while on the speculative side, they have a price target for Megaport of $18 compared with $11.81 currently.
And last but not least, for Fineos Corporation Holdings Plc (ASX: FCL), RBC has a price target of $3 versus $2.30 currently.
