The global sell off in technology and Software-as-a-Service (SaaS) has been both sharp and uneven.
SaaS businesses which are typically characterised by recurring subscription revenue, per-seat pricing models, and valuations heavily weighted toward long-term cash flows, have materially underperformed both broader equity markets and the wider tech sector over the past two years.
As shown in Figure 1, the derating has been most acute in software, with Australian names following global trends despite differing underlying fundamentals.
The global sell off in technology and Software-as-a-Service (SaaS) has been both sharp and uneven.
SaaS businesses which are typically characterised by recurring subscription revenue, per-seat pricing models, and valuations heavily weighted toward long-term cash flows, have materially underperformed both broader equity markets and the wider tech sector over the past two years.
As shown in Figure 1, the derating has been most acute in software, with Australian names following global trends despite differing underlying fundamentals.
Figure 1
Source: Bloomberg
Beneath the surface, very different business models are being repriced in very different ways. Lumping them together hides actual risks and opportunities.
Viewing tech from an Australasian perspective shows that not all regional tech stocks behave like global ones. Some depend on company execution, while others are affected by global factors such as interest rates and risk appetite. This distinction shapes portfolio decisions and opportunity assessment.
Beneath the surface, very different business models are being repriced in very different ways. Lumping them together hides actual risks and opportunities.
Viewing tech from an Australasian perspective shows that not all regional tech stocks behave like global ones. Some depend on company execution, while others are affected by global factors such as interest rates and risk appetite. This distinction shapes portfolio decisions and opportunity assessment.
We identify two main drivers of the recent sell-off.
The first driver is uncertainty about how AI will impact SaaS value, especially “seat compression.” If AI can handle tasks previously requiring multiple users, per-seat pricing becomes less reliable, affecting long-term SaaS valuations.
Not all software is equally vulnerable. Platforms deeply embedded in workflows, with high switching costs or proprietary data, are more resilient than narrow, seat-based tools. The sell-off reflects uncertainty about long-term economics where the revenue model is most exposed.
The second driver is rising discount rates and risk-off sentiment. SaaS, with its value tied to future cash flows and terminal value, is hit hardest among equities when rates rise or risk appetite falls.
Portfolio managers also face a career risk if they underperform in a rising market and, although they might face the ire of clients if they fall in line with a market decline, they will rarely lose their jobs for such an apparent oversight.
The market is scrutinising growth durability. Slower seat growth, price sensitivity, longer sales cycles, and higher churn risk reduce confidence in medium-term ARR growth. Investors now favour profitable growth, operational discipline, and clear paths to margin.
The sell-off highlights the intersection of valuation, growth quality, and cost of capital. Investors now demand evidence of moat durability, pricing power, and a credible AI strategy.
A key question for us is; do NZ and Australian SaaS stocks act as global tech proxies? Analysis of Vista Group and Gentrack (NZ), Xero and Megaport (AU) shows distinct correlation patterns:
Outcomes for Vista and Gentrack are fundamentally linked to delivery against KPIs.
Xero and Megaport’s market pricing is influenced by global risk appetite and tech factors, though fundamentals remain important.
The opportunity set can be simplified into two distinct types of exposure
The sell-off has not created a single trade. Instead, it emphasises the importance of distinguishing between:
Investors seek durable growth, strong moats, pricing power, and clear evidence that AI enhances rather than erodes value.
The key takeaway is that “buying tech low” is not the strategy. Investors need to be explicit about what they are underwriting and the execution or exposure to global factors. In our view the opportunity lies in adopting a selective approach rather than pursuing a directional strategy.