There has been a broad-based sell-off in Australian technology stocks, driven by the notion that artificial intelligence (AI) will rapidly erode the business models of some of our most successful large businesses.
REA Group Ltd (ASX: REA) and CAR Group Ltd (ASX: CAR) have not been immune from the sell-off, with shares in both trending sharply lower over the past three months.
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AI the great unknown
So, on what basis are they being sold off?
Wilsons Advisory has looked at what they called "The AI fear trade", and believes the doom and gloom around these particular stocks might be overdone.
Firstly, they explain that recent developments in AI models, such as Anthropic's Claude Opus 4.6, "have shown growing capability in automating coding, workflows, and enterprise tasks''.
They go on to explain:
For software companies, this has sparked concerns that incumbent software providers could be displaced by in-house AI-driven solutions, as well as by new AI-powered entrants. In the online classifieds space, there are mounting fears that AI chatbots could allow users to bypass traditional platforms as gatekeepers to their respective marketplaces.
Broadly speaking, the Wilsons team said, while they are strong believers in the transformative power of AI, "the recent indiscriminate sell-off across tech and tech-adjacent stocks has overly discounted the wide moats of some of the ASX 100's highest-quality companies, in our view''.
In the case of REA Group and CAR Group, they write, the fear is that AI can aggregate listings across different platforms and become the first port of call for either real estate or vehicle buyers.
They note that currently 80% of site traffic for these businesses is direct to site rather than via search.
The Wilsons team adds:
In a 'worst-case' scenario where direct traffic to REA Group and CAR Group declines, and they are pushed downstream from this gatekeeper position, their value propositions to agents and dealers – as the best source of quality leads – could weaken. While listings would likely remain on the platforms, reduced buyer attention would erode network effects and pricing power, particularly undermining 'pay-for-prominence' and depth-based advertising models.
If this were to happen, it would weaken yield growth over time, while costs would increase due to referral fees paid to AI platforms and also due to increased marketing spend to win back customers.
The Wilsons team added:
With these concerns front of mind, both stocks have de-rated and now trade below their historical averages, as the market applies a higher discount rate to reflect elevated structural uncertainty.
Solid businesses will be resilient
However, the Wilsons team argues that the AI disruption thesis underappreciates the wide moats of both platforms, underpinned by brand strength, deep proprietary datasets, and integrated ecosystems.
As they go on to say:
As the dominant players in their respective markets, REA Group and CAR Group have built significant brand recognition and trust – critical in high-value purchase decisions (particularly property). This advantage becomes increasingly important in an AI-driven world where search, content, and discovery are becoming more fragmented, favouring trusted incumbents over generic aggregators.
In terms of their datasets, both businesses actually look likely to benefit from using AI, "to deepen the value of their marketplaces, supported by data that third-party models cannot easily replicate''.
REA Group, for example, has decades' worth of property data that can be used to power its own AI-driven features, such as conversational search, Wilsons says.
And in terms of the business ecosystem, Wilsons argues that both platforms have moved "well beyond" being simple listings platforms, and are tightly integrated into the business of agents and dealers.
Wilsons said further:
Overall, we expect AI investment to support continued yield and depth growth for both REA Group and CAR Group over the medium to long term by enhancing their value propositions. As these benefits flow through to revenue and profitability metrics, AI-related investor concerns around disruption and longer-term pricing power should gradually ease.
