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While the ASX200 nears all-time highs, the beginning of 2026 has been challenging for Technology investors, particularly Software as a Service (SaaS) businesses. The concentrated selloff has seen the Information Technology Index (XIJ) fall by -23.90%, while sectors such as Materials (+9.74%), Energy (+8.44%), and Financials (+5.15%) have rallied.
The Catalyst: Agentic AI and the "SaaSpocalypse"
The primary driver for the selloff has been rapid advancements in the AI space, most recently Agentic AI. These systems can autonomously plan, reason, and execute complex, multi-step tasks to achieve goals with minimal human intervention. Recent media reports have highlighted the “ChatGPT moment” for agentic AI, marking a shift from passive chatbots to autonomous agents that can execute complex tasks like file management and web browsing. Unlike traditional models, these self-hosted tools operate 24/7, allowing it to act as a proactive "digital employee" rather than a simple conversational interface. While its rapid adoption has fuelled significant investor interest, experts warn of substantial security risks, including "God Mode" system access and the potential for unintended real-world consequences.
Further adding to the selloff is rising inflation locally. With the Australian 10-year yield hitting 4.80%, higher rates mean higher discount rates, leading to lower valuations for high growth names. As a result, we have seen a sharp correction across several high-flying market darlings.
Globally, technology names have also been impacted by the so-called “debasement trade”, leading to sharp falls in the USD. Concerns around central bank money printing and fiscal deficits have weighed on the U.S. dollar, with the U.S. Dollar Index (DXY) falling 1.44% YTD, its lowest level since 2022. The Australian dollar pushed through US$0.71, rising 5.77% over the same timeframe
Why is this crashing SaaS stocks?
This correction in Technology, particularly in global and local Software as a Service (SaaS) names has been dubbed ‘SaaSpocalypse’ by Forbes. This has been far more severe for the sector's high-flying darlings.
The selloff is due to investor fears that advancing AI agents could disrupt or cannibalize traditional seat/license-based SaaS models by automating workflows, reducing the need for multiple human users, and enabling cheaper, AI-native alternatives. This led to a NASDAQ market value decline exceeding US$300B in software/data stocks around Feb 3-6, with the iShares Expanded Tech-Software ETF (IGV) and similar indices down over 30% YTD.
In the U.S., the hardest-hit names have typically been those with heavy exposure to enterprise workflows, collaboration, HR/finance, creative tools, or data that AI could automate (e.g., project management, e-signatures, IT services). Smaller, more growth-oriented SaaS plays with high valuations also suffered disproportionately.
Some of the most notable NASDAQ listed SaaS/software names YTD declines are listed below:
In the local market, some notable share price declines include:
Note: Exposure to the above names is limited in model portfolios.
By contrast, some of the top performing names is the Materials, Energy, and Financials sectors include:
Navigating the Volatility
Some key technology names we currently hold/ have held in our models are WiseTech (WTC), Life360 (360), and Xero (XRO).
- Life360 (360): Since being added to our model portfolios, Life360 has returned over 430% based on current prices. Since topping out above $55/share in October 2025, the share price has declined over 55%. While the share price remains volatile, the underlying data confirms that business growth remains strong, and is successfully transitioning from a pure growth story to a profitable platform with significant operating leverage. Life360 operates in the B2C (Business-to-customer) space. Monetization is through advertising and premium subscription-based services, such as crash detection, emergency assistance, and driving reports. We view these features as difficult to replicate through artificial intelligence. Family safety remains a key concern for parents, accordingly we expect strong user growth and premium uptake to continue.
- WiseTech (WTC):
- Despite the short-term hit, we view the sell-off as sentiment-driven rather than structural. WiseTech’s core logistics operating system remains deeply embedded in global supply chains.
- WiseTech’s software manages the complexity of customs, tariffs, compliance, exceptions, and any number of possible variables for freight forwarders. This level of complexity and integration is difficult for an Agentic AI to replicate, providing a strong moat for the business.
- WiseTech provides the scaffold for international freight forwarders, connecting ports, customs authorities, carriers, and regulators. While AI can and will augment the process, the structure itself is difficult to replicate. Such augmentation can automate exception handling, and reduce training costs and software development costs. The moat lies in the difficulty to replicate, high switching costs, integration depth, and the flywheel effect of customer acquisition. Successful integration of the e2open acquisition should further enhance this flywheel effect.
- WiseTech has fallen from a 5-year average trailing P/E of 83x to below 50x. This remains a rich valuation implying strong future growth. Further downside is possible, particularly given the typical volatility in high growth technology names. However, the long term outlook remains strong, with a wide moat and strong market position.
- Xero (XRO): The market's harsh reaction to the Melio acquisition aligns with our cautious view on the U.S. market opportunity. We are monitoring the US strategy to demonstrate clear user traction. On a valuation basis, Xero’s trailing 5 year average P/E ratio has compressed from 223x to 66x. The business remains exceptionally high quality with a near monopoly in the Aus. & NZ Small to Medium Enterprise (SME) accounting software space.
Here's a brief roundup of how analysts/ brokers view the disruption narrative:
- Ord Minnett: View names such as Energy One (EOL), Gentrack Group (GTK), Hansen Technologies (HSN), and TechnologyOne (TNE) as highly defensive in light of possible disruption.
- RBC Capital: See strong moats in Pro Medicus (PME), TechnologyOne (TNE), REA Group (REA), and WiseTech Global (WTC).
- Citi: Notes that agentic AI tools might enable in-house platforms for advisers, but incumbents like Hub24 (HUB), Netwealth Group (NWL), and Praemium (PPS) benefit from strict regulations, compliance duties, and recent remediation rules that deter new entrants. Online classifieds face lower risks due to market dominance and network effects (e.g. Car Group). Rising AI demand boosts compute needs, favouring data centre firms like NextDC (NXT) and Megaport (MP1).
- Jarden: Views WiseTech Global (WTC) as best shielded from AI threats, but stresses that all covered Australian firms have safeguards and are actively adopting AI. Top picks include Seek (SEK), Xero (XRO), Car Group (CAR), TechnologyOne (TNE), and WiseTech Global (WTC).
Conclusion
Without delving into hypotheticals or comparisons, our core view is that narratives often overstate the impact of faster, easier code-writing from AI, while undervaluing key strengths of successful firms like security, compliance, governance, reliability, distribution, customer loyalty, and high switching costs. Some companies will indeed become obsolete due to innovation.
While the "SaaSpocalypse" has unleashed significant volatility, we believe not all disruptions are equal. Many established players, bolstered by robust moats in compliance, security, and integration, are well-positioned to adapt and even thrive by incorporating AI as an enhancer rather than a replacement. We remain selectively exposed through resilient holdings, prioritizing businesses with proven durability and growth levers.
To complement these positions, we have recently added the Global X Artificial Intelligence Infrastructure ETF (AINF) into our model portfolios. This provides exposure to the "picks and shovels" of AI development. Focusing on the essential infrastructure that underpins AI's growth rather than direct AI developers. This diversified portfolio of global companies involved in energy production (including utilities and uranium miners), materials (such as copper suppliers critical for data centre wiring), and data centre operations. These enablers are poised to benefit from surging demand for compute power, power grids, and physical resources as AI adoption accelerates.
General Advice Disclaimer
Important Information:The information provided in this blog post is general in nature only and does not constitute personal financial, investment, or taxation advice. It has been prepared without taking into account your personal objectives, financial situation, or needs.
Before acting on any information in this post, you should consider the appropriateness of the information having regard to your own objectives, financial situation, and needs. We recommend that you seek independent financial advice from a qualified professional before making any investment decisions.
Past performance is not a reliable indicator of future performance. Share prices and market indices can fluctuate significantly, and there is a risk of loss of capital. Any reference to specific companies or tickers is for illustrative and educational purposes and should not be interpreted as a recommendation to buy, sell, or hold.
