Top ASX Software Shares to Buy Post-AI Selloff

The recent downturn in software-as-a-service (SaaS) stocks, triggered by concerns about artificial intelligence (AI), has raised alarm bells among investors. The market’s rapid response to fears of AI automating software functions has led to a significant decline in valuations, even for well-established companies. However, some analysts argue that the panic may be unwarranted.

Assessing the Impact of AI on Software

While AI is poised to transform the software landscape, it is essential to recognize that not all platforms will be equally affected. Companies with solid customer relationships, intricate workflows, and vast datasets may withstand the storm better than expected.

Attractive Investment Opportunities

Amid this selloff, two ASX software shares stand out for potential investment: WiseTech Global Ltd (ASX: WTC) and Xero Ltd (ASX: XRO).

WiseTech Global: A Strong Market Position

WiseTech Global has encountered a challenging market environment, with fears that AI could commoditize logistics software. However, this notion overlooks how entrenched the company’s CargoWise platform is within global supply chains.

• Reliance on CargoWise: CargoWise serves as a comprehensive solution for freight forwarding, customs compliance, and regulatory navigation.
• Operational Dependence: Large logistics companies depend on CargoWise due to its integration in their operational systems.
• AI Synergy: AI is likely to bolster CargoWise’s capabilities rather than replace it, enhancing data entry and compliance management.

With a focus on execution and a new commercial model, WiseTech’s potential for earnings improvement is promising once market concerns ease.

Xero: Navigating the New AI Era

Similar to WiseTech, Xero is facing scrutiny as investors worry about the potential replacement of accounting software by generative AI. However, Xero’s existing infrastructure is integral to small businesses, containing critical financial data and workflows.

• Trusted System: Xero operates as a reliable source for transaction and compliance data.
• AI-Driven Evolution: The company is shifting from merely a system of record to one that facilitates action and decision making.
• Integrated Solutions: The acquisition of Melio enhances Xero’s offering, merging accounting and payment functionalities.

Xero appears to be leveraging AI to expand its market reach, making it less vulnerable to disruption.

Compelling Risk-Reward Profile

Despite the uncertainties surrounding both companies, the market has reacted strongly, pricing in significant pessimism. Over the past year, share prices for both WiseTech and Xero have fallen by more than 50%. This decline may not fully reflect the resilience and adaptability of these platforms in the face of evolving technology.

For long-term investors, the current climate may present a strategic opportunity to invest in high-quality businesses at undervalued prices. The combination of durable platforms and strong customer loyalty can create a favorable investment environment.

Conclusion

As AI reshapes the software landscape, companies like WiseTech Global and Xero possess unique strengths that may allow them to thrive. Their deep-rooted presence in their respective markets positions them well for future growth, making them attractive options for investment after the recent selloff.