ASX 200 tech shares are trailing the market on Tuesday, down 0.72% while the S&P/ASX 200 Index (ASX: XJO) is up 0.3%.
We're in the midst of a significant tech sector downturn.
The S&P/ASX 200 Information Technology Index (ASX: XIJ) is down 43% over the past six months.
US tech stocks are still travelling well; however, some big players have seen dramatic share price falls in the new year.
The NASDAQ-100 Index (NASDAQ: NDX) is up 4% over the past six months, but down 2% in the year to date (YTD).
Let's dig deeper.
Image source: Getty Images
What's driving ASX 200 tech shares down?
The chief concern among tech investors worldwide centres around how the artificial intelligence (AI) revolution will play out.
Firstly, there's concern about US tech stock valuations after strong earnings growth pushed them higher in 2025.
Luke Yeaman, Chief Economist at Commonwealth Bank of Australia, said:
2025 marked the transition from AI expectation to AI impact, helping the global economy shrug off the tariff hit.
But have investors put too much money into US tech stocks and created a bubble that is yet to burst?
The Mag Seven stocks all gained value in 2025, but all of them have fallen in the new year to date (YTD).
The worst performers are Microsoft Corp (NASDAQ: MSFT), down 17%, and Amazon.com Inc (NASDAQ: AMZN), down 14%.
Global X Fang+ ETF (ASX: FANG), which incorporates the Mag 7 plus three others, paints the group picture for us: it's down 16% YTD.
Yeaman says:
Fears of an "AI bubble" are not irrational — equity valuations are stretched, market concentration is historically high, and expectations for monetisation are demanding.
However, today's AI-leaders are highly profitable, debt-light and have clear monetisation pathways, unlike their dot-com equivalents.
We expect gains to continue, punctuated by periodic technical corrections to valuations, rather than a major 'bust' or GFC style crisis.
Capex gone crazy?
Investors are also concerned about whether massive investment in AI will actually lead to stronger shareholder returns.
Analysis by CBA shows US 'hyperscalers' will spend more than US$500 billion per year from this year on AI infrastructure and chips.
In its Global Market Outlook for 2026, State Street Investment says:
… the US remains the epicenter of the AI trade with Magnificent 7 share price gains fueled by AI spending expectations.
Capital spending by this cohort is expected to grow to about $520 billion in 2026, or over 30% year-on-year.
SaaS on the way out?
The third concern plaguing ASX 200 tech shares is whether AI will replace, or degrade the value, of software-as-a-service companies.
If agentic AI and generative tools, like Anthropic's Claude and OpenAI's Codex, can custom-write software, why would companies buy proprietary SaaS products?
Portfolio manager Ron Shamgar from Australian fund manager, Tamim, explains it:
The core fear: AI agents could replace human workflows, eroding seat-based/per-user pricing models that underpin SaaS giants.
One AI agent might handle tasks previously requiring multiple licensed users, enabling in-house builds or cheaper alternatives.
The big SaaS companies listed in the US include Salesforce, Adobe, Intuit, and ServiceNow.
Check out what's happened to their share prices over the past six months.
Locally, the biggest ASX 200 tech share in the SaaS space is logistics management platform provider, WiseTech Global Ltd (ASX: WTC).
There's also accounting services provider Xero Ltd (ASX: XRO) and enterprise resource planning provider TechnologyOne Ltd (ASX: TNE).
We also have family location app provider Life360 Inc (ASX: 360) and hotel bookings management platform, Siteminder Ltd (ASX: SDR).
Look what has happened to these ASX 200 tech shares over the past six months.
In a recent article, Shamgar calls the market's fear over SaaS models the 'Ozempic moment for Saas'.
He's referring to the valuation plummet for sleep apnea device maker Resmed CDI (ASX: RMD) in 2023.
The Resmed share price crumbled because investors feared the impact of GLP-1 medicines for obesity, like Ozempic and Mounjaro.
The market reaction was brutal.
ResMed's shares plunged roughly 30-40% in the second half of 2023 (from highs around $33-34 AUD to lows near $21), with some periods seeing over 25% drops tied directly to GLP-1 headlines.
As it turns out, investors overreacted.
The initial panic proved exaggerated; the disruption was real but incremental and slower than feared, with adaptation (e.g., hybrid treatments) preserving demand.
Other factors contributing to rotation out of tech
Other factors impacting ASX 200 tech shares include the interest rate hike in Australia this month and expectations of another to come.
There's also been US President Donald Trump's surprising choice for the next Fed Chair, Kevin Warsh.
The market considered Warsh the more hawkish choice, in contrast with Trump's preference for lower rates.
Higher interest rates tend to weigh on tech shares because they reduce the present value of future earnings.
They also increase borrowing costs, making growth and expansion more expensive for tech companies to fund.
On top of that, we have a global debasement trade underway.
Investors have become much more interested in hard assets, like metals, as the US dollar has weakened.
This has created boom conditions for mining shares and commodities, distracting attention away from tech companies.
ASX 200 mining stocks returned a staggering 36% last year, with most of that accumulating in the second half.
