The technology sector has had a torrid year, with many companies undergoing a share price rout earlier in the year due to the so-called SaaSpocalypse.
This has arguably created value among some oversold ASX tech stocks, with RBC listing several that it believes represent good value at current levels.
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AI spectre still hovers over the ASX tech sector
Broadly, RBC said in a note to clients this week that artificial intelligence (AI) and its ramifications for the sector remain the dominant driver of their views coming into the August reporting season.
RBC said:
Repeated releases of frontier models showcasing agentic capabilities across enterprise workflows should continue to weigh on multiples near-term, with the debate remaining on terminal values rather than near-term earnings. However, we believe software continues to have a role to play, and a SaaSurrection scenario is not out of reach – the sector will likely need another 1-2 reporting seasons for earnings to disprove the (disruption) narrative before the market ascribes any meaningful re rate.
RBC said within software, "we view our coverage through the lens of whether an AI/agent must transact through, or can route around, an application''.
They have a preference for companies whose products serve mission-critical enterprise workloads, as opposed to narrower verticals.
They added:
We remain positive on Data Centres and Networking players on their exposure to the AI capex cycle with demand indicators remaining strong.
Let's see who they like specifically:
Technology One Ltd (ASX: TNE)
RBC said this company is "emerging as one of the most AI defensive software names across our coverage owing to its mission-critical status amongst its public sector client base''.
The broker said Technology One had strong return on investment and was growing well in the UK, "with ANZ seeing opportunities in Federal gov, on top of differentiated SaaS+ offering''.
RBC has a price target of $33 on Technology One shares.
Megaport Ltd (ASX: MP1)
RBC said this company is one of the cleanest ways to get exposure to the AI thematic on the ASX, "with both networking and compute segments direct beneficiaries of AI demand''.
They added:
Demand outlook for compute remains robust with record hyperscaler capex, AI lab leasing, and GPU pricing strength.
RBC has a price target of $25 on Megaport shares.
Wisetech Ltd (ASX: WTC)
RBC said the FY27 guidance from this company will be highly anticipated.
Overall, the market consensus is bearish on the stock, RBC said, and debate around the impact of AI and governance concerns "won't dissipate anytime soon''.
Despite those negative sentiments, RBC has a price target of $64 on the shares.
NextDC Ltd (ASX: NXT)
RBC said AI and cloud business continues to drive a record order book for NextDC, "however, largely overshadowed by focus on execution as NXT enters into a heavy capex phase with several concurrent projects contributing to about $4.5bn of capex spend across FY27''.
RBC has a price target of $22 on NextDC.
