ASX tech shares are leading the market on Thursday, climbing 4.3% as the S&P/ASX 200 Index (ASX: XJO) hits a new record. This surge comes amid ongoing turmoil in the tech sector, which has seen the S&P/ASX 200 Information Technology Index (ASX: XIJ) plummet by over 40% in the past six months.
Investors have been grappling with concerns over inflated stock valuations and the potential impact of massive capital expenditures on artificial intelligence (AI). This year, fears have shifted towards AI’s potential to disrupt software-as-a-service (SaaS) companies. Earlier this month, Anthropic’s new legal plug-in for its AI assistant, Claude, sparked fears of a global ‘SaaSpocalypse’, causing shares in Thomson Reuters to drop 22%.
AI’s Impact on SaaS Companies
Portfolio manager Ron Shamgar from Australian fund manager Tamim highlights the core fear: AI agents could replace human workflows, undermining the seat-based pricing models that SaaS giants rely on. This shift could enable companies to build in-house solutions or opt for cheaper alternatives, posing a significant threat to ASX tech shares, where four of the six largest companies are SaaS providers.
These companies include WiseTech Global Ltd (ASX: WTC), Xero Ltd (ASX: XRO), TechnologyOne Ltd (ASX: TNE), and Life360 Inc (ASX: 360). Significant price movements in these companies tend to affect the entire sector, impacting broader investor sentiment.
Volatility and Rebound
Amid the ASX earnings season, some tech shares have rebounded following positive news. Life360’s better-than-expected trading update led to a 27% share price jump on January 23. TechnologyOne shares soared over 20% after upgrading its FY26 guidance, and WiseTech shares leapt 11% after reporting a 76% revenue surge.
Despite these rebounds, the tech index has seen significant volatility, with a 7.9% drop earlier this week followed by a 5.75% surge yesterday. Today, tech shares are up another 4.3%, leaving investors feeling dizzy from the rapid fluctuations.
Fund Managers’ Strategies Amid Sell-Off
Blackwattle Investment Partners’ portfolio managers Tim Riordan and Michael Teran have been reassessing their strategies to protect clients from the tech sector’s turbulence while seizing opportunities to invest in quality companies at discounted valuations.
According to Riordan and Teran, the rapid improvement in agentic AI has prompted a reevaluation of their technology holdings. They are now focusing on companies with strong network effects to avoid downside earnings risk and capitalize on potential earnings upside.
Xero Shares Under Pressure
Xero shares were the largest negative contributor to Blackwattle’s mid-cap fund in January, falling 18% amid global sell-offs driven by AI fears. The managers note that Xero had been performing well until mid-2025, but the acquisition of Melio introduced uncertainty, now compounded by AI concerns.
“The recent AI agent updates have created significant disruption implications, and it has become difficult to have confidence in the terminal value of some legacy technology companies,” Riordan and Teran commented.
Life360’s Resilience
Despite a 26.5% year-to-date fall, Blackwattle’s large-cap fund managers Joe Koh and Elan Miller remain optimistic about Life360. They emphasize the company’s strong franchise and multiple growth options, noting that the market’s indiscriminate sell-off overlooks Life360’s solid execution.
“We continue to believe that 360 has an extremely strong franchise with multiple, long-term growth options and – perhaps just as importantly – is executing very well,” Koh and Miller stated.
Strategic Acquisitions: Catapult Sports
Blackwattle’s small-cap fund managers, Robert Hawkesford and Daniel Broeren, have taken advantage of the market downturn to invest in Catapult Sports Ltd (ASX: CAT). They initiated their position in November after the company’s share price dropped 45% from its October high.
“Recent acquisitions strengthen the company’s competitive advantage and should accelerate market share gains from weaker competitors,” Hawkesford and Broeren explained.
Looking Ahead
As ASX tech share investors navigate the challenges posed by AI, fund managers are focusing on companies with strong competitive advantages and potential for growth. The ongoing volatility presents both risks and opportunities, as investors seek clarity on AI’s long-term impact on the tech sector.
With AI advancements continuing to disrupt traditional business models, the tech sector’s future remains uncertain. However, strategic investments and a focus on quality companies may help investors weather the storm and capitalize on emerging opportunities.
