The recent selloff across software-as-a-service (SaaS) stocks has been brutal. Artificial intelligence (AI) breakthroughs have sparked fears that entire layers of software could one day be automated away, and the market hasn't waited around to find out. Valuations have compressed fast, sentiment has turned, and some very high-quality businesses have been sold as if their competitive advantages no longer matter.
I don't see it that way.
While it's sensible to acknowledge that AI will change how software is built and used, I think the market has gone too far in assuming it will simply replace entrenched platforms with deep customer relationships, complex workflows, and massive datasets. In a few cases, the selloff has created a risk-reward setup that looks genuinely attractive.
Two ASX software shares I would buy after the AI selloff are WiseTech Global Ltd (ASX: WTC) and Xero Ltd (ASX: XRO).
Image source: Getty Images
Why WiseTech still has a powerful moat
WiseTech's share price has been hit hard, with investors worrying that AI could commoditise logistics software or lower barriers to entry. That fear ignores how deeply embedded WiseTech's CargoWise platform is in global supply chains.
CargoWise isn't a simple point solution. It sits at the centre of freight forwarding operations, customs compliance, tariffs, documentation, and increasingly complex cross-border trade rules. Large logistics providers don't just use it because it's functional. They rely on it because ripping it out would be operationally risky and enormously disruptive.
AI, in my view, is more likely to enhance CargoWise than replace it. Automating data entry, improving routing decisions, and helping customers navigate regulatory complexity all play directly into WiseTech's strengths. Add in the integration of e2open and the shift to a new commercial model, and I think the business is quietly setting itself up for a re-acceleration in earnings once execution risk fades.
The share price suggests the market is focused on what could go wrong. I'm more interested in what happens if WiseTech simply continues doing what it has done for years.
Why AI may strengthen Xero
Another ASX software share caught up in the broader AI panic is Xero, with concerns that generative AI could one day replace accounting software altogether. But when you dig into how small businesses actually operate, I think that thesis looks shaky.
Xero already sits at the heart of a small business's financial life. It is the system of record that holds years of transaction data, payroll history, tax information, and compliance workflows. AI tools still need a trusted source of truth to operate from, and that is where Xero's position becomes powerful.
In an investor briefing this week, management made it clear that Xero sees AI as a way to evolve from a system of record into a "system of action and decision making" for small businesses. The company highlighted that millions of subscribers are already benefiting from AI-enabled features, from automation through bank feeds to insights that help owners manage their businesses more effectively. Xero also pointed to its deep domain knowledge, unique data platform, and strong network of accountants and bookkeepers as structural advantages that are hard to replicate.
Rather than being disrupted by AI, Xero appears to be using it to expand its total addressable market and increase the value it delivers per customer. The integration of Melio in the US only reinforces that, bringing accounting and payments together on one platform and improving unit economics over time.
Why the risk-reward looks compelling here
There's no denying that both WiseTech and Xero face real risks. AI is moving quickly, competition is intense, and execution always matters. But after the share price declined by more than 50% over the past 12 months, I think the market is already pricing in a lot of bad news.
What it may be underestimating is how durable these platforms are, how sticky their customers tend to be, and how well positioned they are to adapt AI to their advantage rather than fall victim to it.
For me, this is exactly the kind of environment where long-term investors should lean in, not step back. When fear drives prices well below what the underlying business quality suggests, the odds start to tilt in your favour.
Foolish takeaway
AI will absolutely reshape software. But not all software is created equal.
WiseTech Global and Xero aren't generic tools that can be swapped out overnight. They are deeply embedded platforms with data, scale, and customer trust on their side. After the recent selloff, I think the market is being too pessimistic about their futures.
