FY26 was one of the worst years in memory for ASX tech stocks as a group.
The sector fell sharply under the combined weight of AI disruption fears, higher-for-longer interest rates, and rotation out of growth names into resources and energy.
As FY27 begins, the question is whether three of the sector's most talked-about names have bottomed, or whether there is further pain ahead.
Here is the case that the worst is already behind them.
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Xero: FY27 guidance beat, and a buyback to back it up
Xero Ltd (ASX: XRO) had one of the more dramatic results days of any ASX stock in May 2026.
Shares initially fell sharply when the FY2026 result showed a 27% decline in statutory profit, before recovering all of those losses the following day when investors digested what the numbers actually showed underneath the headline.
Operating revenue grew 31% to $2.75 billion, adjusted EBITDA lifted 18% to $757.4 million, and annualised monthly recurring revenue jumped 37% to $3.27 billion.
Furthermore, Xero's FY27 guidance pointed toward another year of roughly 34% revenue growth. The company simultaneously authorised a NZ$550 million share buyback at a share price management clearly believes is below intrinsic value.
Another bullish signal, Morgans retained its buy rating with a $111 price target. The broker highlighted that both the FY26 result and FY27 outlook beat expectations and that earnings momentum continues to improve relative to consensus.
The US expansion, which delivered 240% revenue growth in FY26, is the key growth engine for FY27 and beyond.
Megaport: fresh capital, major contracts, and AI infrastructure tailwinds
Megaport Ltd (ASX: MP1) has had a more positive FY26 than its share price alone would suggest.
A major contract win for its Latitude.sh business, representing combined total contract value of approximately US$182.9 million across two customers, confirmed that Megaport is successfully positioning itself as a critical AI infrastructure partner rather than a legacy network solutions provider.
Megaport subsequently launched a retail entitlement offer after raising $827 million. This capital raise will support new AI contracts and fund global infrastructure investment.
That capital raise at once gives Megaport the runway to execute on its AI network buildout and signals institutional confidence in the growth thesis at current prices.
Brokers remain bullish on Megaport. UBS retained its buy rating on Megaport and raised its 12-month price target to $24.20, implying significant upside.
The broker cited Megaport's positioning as a critical AI infrastructure partner and the transformative nature of the four new AI contracts secured in June.
For investors, Megaport is a higher-risk, higher-conviction play on AI infrastructure than the more obvious data centre names. However, with the recent capital raises, the company is well positioned to execute on the AI opportunity in FY27.
Life360 Inc: a reasonable valuation, a diversifying revenue base, and a broker prepared to back it
Life360 Inc (ASX: 360) is the most differentiated of the three, and arguably the most misunderstood.
The family safety and location-tracking app was swept up in the same sector-wide selloff that hit WiseTech and Xero. This was despite the fact that its revenue model and competitive dynamics are almost entirely different from enterprise software names.
Life360 shares are down 19% in 2026, and Bell Potter has a buy rating on the stock. The broker believes the valuation as undemanding given the company's subscriber growth trajectory.
Furthermore, the company's advertising revenue line, which grew 329% year-on-year in Q1 2026 following the Nativo acquisition, has added a meaningful second revenue stream on top of the core subscription model.
The combination of two growing revenue lines at a forward earnings multiple well below broader ASX technology peers makes Life360 one of the more interesting propositions in the sector heading into FY27.
Foolish takeaway for ASX tech stocks
Xero, Megaport, and Life360 have all been punished in FY26 for reasons that are partly legitimate and partly an overreaction.
Each enters FY27 with a specific reason to expect a better year: Xero with proven US growth and a buyback, Megaport with $827 million in fresh capital and major AI contracts, and Life360 with a diversifying revenue base at a compelling valuation.
None is without risk, and further volatility should be expected. But these ASX tech stocks offer a compelling proposition for ASX investors willing to take on a bit more risk.
