S&P/ASX 200 Index (ASX: XJO) tech stocks, including REA Group Ltd (ASX: REA) and TechnologyOne Ltd (ASX: TNE), have taken a beating this past year.
Indeed, while the ASX 200 has managed to push 2.8% higher over the last 12 months, the S&P/ASX All Technology Index (ASX: XTX) has plunged 27.5% over this same period.
(All price data as at late afternoon trade on Wednesday, 24 June.)
As for REA Group, at $131.55 each, shares in the online property listings company are down a sharp 43.9% in a year. REA shares also trade on a 2% fully-franked trailing dividend yield.
TechnologyOne shares have fared a little better, but not much.
At $28.05 apiece, shares in the ASX 200 software-as-a-service (SaaS) provider have dropped 30.5% in 12 months. TechnologyOne stock also trades on a 1.3% partly-franked trailing dividend yield.
While each company has faced its own issues, they've both gotten caught up in the so-called SaaSpocalypse. This has seen most SaaS stocks suffering steep declines amid investor concerns that artificial intelligence could replace a lot of the services these companies offer.
Then there's rising interest rates, with the RBA hiking rates three times this year and the US Fed switching from an easing outlook to potential tightening as well.
That's a particularly strong headwind for many tech stocks, including TechnologyOne and REA, as these are often priced with higher future earnings in mind. And as interest rates go up, so too does the present cost of investing in those future earnings.
But following the past year's sell-off, a number of prominent fund managers are seeing value emerging in the ASX tech space.
Image source: Getty Images
REA and TechnologyOne shares tipped to thrive in an AI world
Solaris portfolio manager Damien Keune expects that REA shares won't be taken out by the rise of artificial intelligence.
"The AI revolution might change how buyers search for properties, but the houses still need to be listed somewhere," Keune said, quoted by the Australian Financial Review.
According to Keune:
REA has lived through many property cycles, and they've always managed to report positive earnings growth because they're so embedded in what is an emotionally charged process of buying and selling a house.
And Ten Cap portfolio manager Jun Bei Liu said she is bullish on TechnologyOne shares.
Liu noted:
ASX tech is becoming interesting again. The ones we like are those that still have a long runway for revenue growth, recurring income, and operating leverage, even in an AI world.
