ASX tech shares have been sold off heavily over the last several months amid AI-related concerns. I think some of them are now significantly undervalued. Comments by the Nvidia Corp (NASDAQ: NVDA) boss – one of the most well-placed to judge the potential impacts of AI – suggest the (ASX) tech share space has gone down too much.
Nvidia is one of the most important businesses in the technology supply chain, providing chips needed for AI and data centres. AI companies like OpenAI and Anthropic wouldn't be able to do what they do without the foundations provided by Nvidia.
Let's take a look at what Nvidia CEO Jensen Huang said and how it could be applied to ASX tech shares.
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The markets got it wrong
Earlier this week, Huang spoke with CNBC's Becky Quick and shared his thoughts on investor concerns that AI agents might affect the earnings of several software companies.
He said that he thought "the markets got it wrong" regarding fears that AI agents will cannibalise the enterprise software industry. He doesn't think AI agents will replace the software tools, but will use them instead to boost efficiency. Huang then said to CNBC:
That's the reason why we also say agents are tool users.
All of these tools that we use today, whether it's Cadence or Synopsys or ServiceNow or SAP, these tools exist for a fundamentally good reason. These agentic AI will be intelligent software that uses these tools on our behalf and help us be more productive.
Nobody's going to service better than ServiceNow, and they're going to come up with agents that are really fine-tuned and optimized for the work that uses the tools that they have.
In the end, we need the tools to finish their work and put the information back in a way that we can understand.
I'm not in a position to know how AI tools and their use will develop in the coming years, but I think it would be too bearish to assume businesses will lose a large chunk of clients and margins in the next few years.
Why I think the ASX tech shares are undervalued
A share price is meant to reflect the long-term future prospects of a business, but I don't think the prospects of names like Xero Ltd (ASX: XRO), TechnologyOne Ltd (ASX: TNE), Pro Medicus Ltd (ASX: PME), Siteminder Ltd (ASX: SDR), REA Group Ltd (ASX: REA), and CAR Group Ltd (ASX: CAR) have dropped by 40% or 50%.
I think all of them have stronger economic moats than what the market is giving them credit for. Virtually all of them delivered strong revenue growth in the most recent reporting season, and I believe that profit margin improvement is quite likely to rise at many of them over the rest of FY26 as well.
I'm not sure I could commit to all of them for 50 years, but I'd be excited to buy any of them for my portfolio as a medium-term investment.
