KEY POINTS
- ASX tech stocks were hammered earlier this week, with Xero (ASX: XRO) sinking to a multi-year low around A$66, its lowest since the 2020 COVID sell-off.
- The cause was global, not local: a sharp selloff in US AI and chip stocks, plus fears the US Federal Reserve will keep interest rates higher for longer.
- Today, the mood flipped. Xero jumped about 8% to close near A$70.31, helping lead a rebound in the beaten-down sector.
- We think most of the selling was about sentiment, not broken businesses, but the recovery may be bumpy until global tech settles down.
Australian tech stocks staged a comeback on Wednesday, with Xero (ASX: XRO) jumping 8.17% to close at A$70.31 after a bruising few days. The rebound was helped by a fresh Buy rating from broker Citi and a powerful turnaround in fellow tech heavyweight WiseTech. Just a day earlier, the sector had been in freefall, with Xero hitting a multi-year low of A$65 and the broader ASX tech index down about 4%. The big question for investors: was this week’s sell-off a warning sign or a buying opportunity the market is already starting to grab?
What Sparked the Selloff?
The trigger came from overseas. A heavy selloff in US AI and chip stocks rattled markets around the world, and Australian tech got swept up in it. On top of that, the US Federal Reserve has turned more hawkish, with investors now betting on higher interest rates instead of cuts.
Here is why that matters for tech. Fast-growing software companies like Xero and TechnologyOne (ASX:TNE) are valued on profits expected years down the track. When interest rates look set to stay high, those far-off profits are worth less today, so these share prices tend to fall the hardest. It is the same pressure squeezing tech stocks globally, not a problem unique to Australia.
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Why Did ASX Tech Fall Harder Than the Market?
While the broader ASX 200 barely moved this week, tech took an outsized hit. Part of the reason is concentration. A few big names like Xero and WiseTech dominate the local tech index, so when they drop, they drag the whole sector down with them.
There were local pressures too. WiseTech has been under a cloud since reports of an alleged Australian Federal Police (AFP) investigation into its executive chairman, Richard White. The company told the market that the matter relates to White in a personal capacity, that there is no suggestion the company itself is involved, and that it is not aware of any such investigation. White has denied any wrongdoing, and no charges have been laid. On top of that, with the Australian financial year ending on June 30, some investors may be selling beaten-down stocks like Xero simply to lock in tax losses, adding to the wave of selling.
Is the Worst Over?
Today’s bounce is encouraging, but we would not call the all-clear just yet. Xero is still down more than 64% from its 52-week high of A$196.52, and the global AI selloff that started all this could easily flare up again.
For investors, the trick is to separate the market noise from the businesses underneath it. Xero, for example, is still adding customers and growing revenue even as its share price has been pummelled. If global tech steadies and the Fed fears cool, this week’s lows could end up looking cheap. If they do not, expect more wild swings. Tomorrow, we will look at whether Xero is a genuine bargain at these levels or a falling knife.
