Fears over how artificial intelligence (AI) may impact software businesses contributed to a 48% rout for ASX tech shares between 29 August last year and 30 March this year.
James Gerrish from Shaw and Partners reckons software stocks have now bottomed, and several are well-placed for a rebound in 1H FY27.
In a newsletter, Gerrish told investors his Market Matters team was buying one particular stock today for their Active Growth Portfolio.
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Which ASX tech share?
Following a 30% share price decline over 12 months, Gerrish and his team are buying Pro Medicus Ltd (ASX: PME) shares.
Pro Medicus designs and distributes medical imaging software and services to healthcare providers around the world.
Now, a technical note.
Pro Medicus is actually classified as an ASX healthcare share.
But its business is all about high tech.
That's why it's among the top 10 stocks in the S&P/ASX All Technology Index (ASX: XTX), the benchmark for Australian technology companies.
400% share price rise
Pro Medicus became an ASX darling between 2023 and 2025 when its share price rocketed 400% on the back of many contract wins.
The Pro Medicus share price reached a record $336 per share on 17 July 2025.
Then came the correction, which sent the tech company tumbling to a two-year low of $107.75 on 24 February.
Today, Pro Medicus shares are trading at $157.46, up 9% on yesterday's close of $144.46.
Today's surge follows a new contract win announced yesterday.
For 1H FY26, Pro Medicus reported a 28% lift in revenue and a 30% increase in underlying net profit after tax (NPAT).
Gerrish said Pro Medicus had continued to execute exceptionally well while the share price reset itself.
Importantly, the recent pullback has been driven far more by multiple compression than any deterioration in the company's fundamentals.
In our view, PME remains the highest-quality and arguably most defensively positioned software business on the ASX.
How is Pro Medicus 'defensively positioned' against AI?
For starters, the company's Visage 7 medical imaging platform is already deeply embedded across leading US hospital networks.
Gerrish said:
This is not discretionary software that can be easily switched off or replaced.
PME continues to maintain an exceptional customer retention record, while also winning major contracts against much larger competitors — a strong endorsement of the quality of its technology and the value it delivers to customers.
While AI disruption is a legitimate concern for investors in ASX tech shares, Gerrish reckons Pro Medicus will benefit from AI.
… we think Pro Medicus is one of the few names where AI is more likely to enhance the moat than erode it.
Rather than replacing Visage, AI can make the platform more valuable by improving radiology workflows, accelerating image analysis, supporting detection tools and automating parts of the reporting process.
Management has been actively embedding AI capabilities into Visage, including advanced breast cancer screening applications and its RadPath Hub, which integrates radiology and pathology data to support more sophisticated clinical decision-making.
ASX tech shares rebounding
The ASX tech sector turned a corner on 31 March after a 48% decline over seven months.
Since then, Pro Medicus shares have risen 38%, outperforming the S&P/ASX 200 Information Technology Index (ASX: XIJ), up 29%.
Gerrish says Pro Medicus shares look "exceptionally well placed" in a market beginning to rotate back to quality software providers.
Investors often pay up for genuine scarcity, and PME offers exactly that: world-class technology, recurring revenue, strong margins, global growth potential and a product that is becoming more important, not less, as healthcare systems digitise.
The expert acknowledges that Pro Medicus shares still trade on a premium multiple, so valuation and execution remain risks.
PME still trades on a premium multiple, leaving less room for disappointment, while US hospital budget cycles and the timing of large contract wins can create volatility.
However, with only a modest share of the US imaging market, a mission-critical product, a long runway for new contract wins and clear leverage to AI-enabled healthcare digitisation, we think Pro Medicus remains one of the best-positioned structural growth stories on the ASX.
