ASX tech shares are leading the market on Thursday, up 4.3% amid a new record for the S&P/ASX 200 Index (ASX: XJO).
The tech sector has been in turmoil for several months.
The S&P/ASX 200 Information Technology Index (ASX: XIJ) has fallen by more than 40% over a six-month period.
Last year, investors were worried about stretched stock valuations and whether mega capex on artificial intelligence (AI) would pay off.
This year, investors are fearful that AI might end up replacing, or at least seriously undermining, software-as-a-service (SaaS) companies.
Earlier this month, Anthropic's new legal plug-in for its agentic AI assistant, Claude, sparked fears of a global 'SaaSpocalypse'.
Within a week, shares in Thomson Reuters, whose SaaS platforms Westlaw and Practical Law serve legal professionals, were down 22%.
Portfolio manager Ron Shamgar from Australian fund manager, Tamim, explains the threat:
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 Saas-specific fear is particularly problematic for ASX tech shares because four of our six largest companies are SaaS providers.
They are: logistics software platform provider WiseTech Global Ltd (ASX: WTC), accounting software platform provider, Xero Ltd (ASX: XRO) ERP software provider, TechnologyOne Ltd (ASX: TNE), and family location app developer, Life360 Inc (ASX: 360).
Significant price movements in a sector's largest companies tend to drag the whole sector down, impacting broader investor sentiment.
Image source: Getty Images
Volatility this month
Amid ASX earnings season this month, some ASX tech shares have rebounded after positive news reassured the companies' investors.
Fund manager, Blackwattle, said a "better-than-expected" trading update from Life360 led to a 27% share price jump on 23 January.
Last week, TechnologyOne shares soared by more than 20% after the company upgraded its FY26 guidance at the annual general meeting.
Yesterday, Wisetech shares leapt 11% after management reported a 76% revenue surge in 1H FY26, while also speaking of "a deep AI transformation" that would see 2,000 jobs cut in FY26 and FY27.
Last week, we saw a 7% bounce back for ASX tech shares.
On Monday and Tuesday, the tech index fell 7.9%. Yesterday, it surged 5.75%.
Today, we're seeing another lift — up 4.3%.
Anyone dizzy yet?
Fundie describes 'indiscriminate' ASX tech share sell-off
The portfolio managers at Blackwattle Investment Partners have been busily assessing how to protect their clients from the tech sector rout while also seizing opportunities to buy good-quality companies cheaply.
Blackwattle mid-cap portfolio managers Tim Riordan and Michael Teran explained:
The speed and magnitude of the improvement in agentic AI surprised us, and we have reconsidered our views on some of the technology holdings in the portfolio.
The indiscriminate sell-down across ASX technology stocks has provided the fund the opportunity to redirect capital to technology businesses which have stronger barriers, namely network effects, at highly discounted valuations.
There were several portfolio changes in January, reflecting our change in view of AI disruption.The changes are focused on avoiding downside earnings risk and seeking Quality companies with earnings upside risk.
As ASX tech share investors seek clarity around AI, it's interesting to learn how the professionals view some of their tech holdings today.
Xero shares
Riordan and Teran said Xero shares were the largest negative contributor to the mid-cap fund's performance in January, falling 18%.
They commented:
XRO fell 18% in January as technology stocks sold off globally on AI fears, which are seemingly reaching crescendo levels, following further releases of agentic AI models.
The new releases of AI agents have shown significant improvement in the space of recent weeks and their current trajectory could be highly disruptive to legacy technology companies.
XRO had been a solid performer until mid-2025, but the acquisition of the loss-making Melio business created uncertainty for investors, which has now been compounded by AI fears.
Short term, the managers expect Xero to remain a market-leading, global accounting SaaS software provider with strong financial metrics.
But they add:
However, the recent AI agent updates have created significant disruption implications, and it has become difficult to have confidence in the terminal value of some legacy technology companies.
As such we have focused the portfolio on those which we assess to have the strongest network effects.
Life360 shares
Joe Koh and Elan Miller, who run Blackwattle's large-cap quality fund, speak highly of Life360 shares despite their 26.5% year-to-date fall.
Life360 (360) was once again a major detractor from Fund performance [in January], despite a sound (and better-than-expected) trading update which initially saw the stock up 27% on the day.
Nevertheless, 360 gave up virtually all its share price gains in the subsequent week (and more in February), as the market indiscriminately – in our view — sells down any technology stock that has any risk of being disrupted by AI.
We continue to believe that 360 has an extremely strong franchise with multiple, long-term growth options and – perhaps just as importantly – is executing very well.
ASX tech share bought during rout
Blackwattle's small-cap fund managers, Robert Hawkesford and Daniel Broeren, bought Catapult Sports Ltd (ASX: CAT) in November.
The managers said:
We took our initial position in November as the share price dropped 45% from its October high after reporting its interim result.
The result showed strong operational performance; however, the company guided near-term earnings per share impacts as it funds recent acquisitions.
Hawkesford and Broeren have a positive long-term view of this ASX tech share.
… recent acquisitions strengthen the company's competitive advantage and should accelerate market share gains from weaker competitors.
Shares in the company remained volatile in January, however we see these prices as attractive and will look to average into the position.
