ASX tech shares had a rough FY26.
WiseTech Global Ltd (ASX: WTC) was the worst performer in the entire ASX 200 in FY26, dropping 70% in value.
In May, it handed over its status as the ASX's largest technology company by market capitalisation to Xero Ltd (ASX: XRO). Xero has itself fallen significantly from its all-time high of $196.52.
Both need a turnaround.
But the path back for these ASX tech shares looks very different for each.
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WiseTech: The turnaround is a governance story more than a business story
The crucial thing to understand about WiseTech's collapse is what did not cause it.
The CargoWise platform remains used by 23 of the world's top 25 global freight forwarders. Switching costs are so high that customer retention has remained strong throughout the governance turmoil.
Importantly, WiseTech has maintained its FY26 guidance, expecting revenue of US$1.39 billion to US$1.44 billion with EBITDA margins of 40% to 41%.
The business has not broken. What has broken is investor trust in the governance around the business. This has been driven by a series of allegations against founder Richard White, including an AFP investigation into alleged trafficking matters.
Since then, a new Chair has been appointed, which is the first concrete governance action since the Richard White allegations escalated.
For a sustained WiseTech turnaround, the market needs three things: resolution of the legal matters, clear separation between founder influence and board independence, and an FY26 full-year result in August that confirms guidance has been met.
Bell Potter carries a buy rating with a $71.75 price target, noting that, depending on the August result, FY27 forecasts could prove conservative.
JP Morgan, however, downgraded WiseTech to hold with a $40 target following the governance concerns. This serves to illustrate how divided the broker community is on the timing of the recovery.
The business case for WiseTech is not in dispute. The governance case is.
Xero: The turnaround is about valuation and execution for this ASX tech share
Xero's challenge is different.
There are no governance concerns, no AFP investigations, and no allegations against management.
The FY 2026 result delivered 31% revenue growth to $2.75 billion, with the US business surging 240% on the back of the Melio acquisition.
The reason Xero shares have fallen from their peak is almost entirely about valuation.
At its high, Xero traded at well over 100 times earnings, a multiple that assumed many years of rapid, uninterrupted growth.
As interest rates rose and growth investors rotated into value and resources, the multiple compressed dramatically, even as the underlying business kept delivering.
The turnaround for Xero is therefore simpler but not necessarily faster in practice.
It requires the market to reaccept a premium valuation for a high-growth SaaS business, which in turn requires interest rates to fall, earnings growth to accelerate, and the US expansion to keep demonstrating that FY26's 240% revenue growth was not a one-off.
On the broker level, Goldman Sachs carries a buy rating on Xero with a $205 price target, implying significant upside at current levels.
Perhaps encouragingly, the company has authorised a NZ$550 million buyback for FY27, a direct signal of management's confidence in the share price at current levels.
The common thread for these ASX tech shares
Despite their different problems, both stocks share one thing: the market has sold them down in a way that disconnects the share price from the operational reality of each business.
Another article on the Motley Fool AU noted recently that:
WiseTech is grappling with rebuilding investor confidence after governance-related uncertainty, while Xero is navigating a broader reassessment of software valuations. In both cases, the recent rally may reflect a shift in sentiment rather than a full reversal of trend.
A turnaround for WiseTech requires governance resolution. A turnaround for Xero requires the market to re-price a business that has kept growing, even as the share price has not.
Both are possible in FY27, but neither is guaranteed.
Foolish Takeaway
WiseTech and Xero are two very different ASX tech shares wearing the same label.
WiseTech needs to fix its governance before the share price can sustainably recover, regardless of how good the CargoWise business actually is. Xero needs the macro environment and its own US execution to align before the market will restore the premium valuation the business arguably deserves.
Patient investors in both stocks are betting that FY27 delivers on those conditions.
It is a reasonable bet, but not a certain one.
