Quick Bites | What Does AI Mean for Tech Incumbents

When a certain thematic or topic du jour is front of mind for investors, markets have a way of overshooting to the upside and/or downside. We have seen this time and time again, but most recently, a theme that comes to mind is the dramatic rise in companies associated with the ESG and Electric Vehicles thematic. This was soon followed by a dramatic fall as investors’ expectations were far too optimistic with earnings and company announcements falling well short of analyst forecasts. Additionally, this also saw the “hot money” rush for the exits and look for the next theme to speculate on.

No topic has been talked more about over the past few years than Artificial Intelligence (AI). In an episode of ‘The View’ last year, we discussed how AI is rewiring the global economy and whether it is revolutionary or evolutionary. Since then, there has been a further shift beneath the surface where global markets have sold down those companies that are seen to be “AI losers”, namely within the software and online classifieds sectors. The below two charts illustrate.

Chart 1 – US Software vs Semis: SPX Median EV to NTM Sales

Source: Coatue Investments, FactSet Dec 2025

*SPX Software & Services and SPX Semis & Semi Equip GICS sectors

Chart 2 – ASX Software & Online Classifieds caught up in global tech de-rating

Source: FactSet, Dec 2025

In our view, the weakness in listed software and on-line classifieds stocks reflects two issues:

1. Systematic risks – AI/GPU is eating software (no longer software eating the world) creating uncertainty about current business models and their sustainability alongside higher long bond yields leading to higher discount rates and crushing valuations of highly valued (P/E) companies.
2. Idiosyncratic risks – company specific issues (disappointing earnings/trading updates, key management changes), change in competitive landscape.

As often happens in share markets, investors shoot first and asks questions later. Speculation and controversy as to whether AI is friend or foe has sided with the latter. To some extent this is understandable given the bear case for AI has some plausibility given we know from history that even the large incumbent technology businesses can come to look vulnerable. Let’s not forget that only 12-months ago, Google’s share price was under pressure due to concerns that AI language models would cause Google Search to dramatically decline. However, as shown in the below chart, fast-forward to today and the market is seemingly treating Google as the new “AI winner” thanks to their impressive release of Gemini 3 and custom accelerated computing chips called TPU’s (Tensor Processing Units).

Chart 3 – Google: From Disbelief to Belief. Now over belief?

Source: FactSet, Jan 2026

When we think domestically about how ASX listed technology names could be impacted, several questions come to mind:

• Regarding the on-line classifieds: will we be using AI to search for property, jobs and cars in the future? That is, does the evolution of search from click-through search on Google to zero click search i.e. searching via a Language Models (LLM) such as ChatGPT, Claude or Perplexity etc. mean that the demand and need for agents and vendors to list property on REAs platform become less meaningful and therefore reduce the importance of Premium Tier ad listings?
• Regarding software providers: does the improved ability of coding via AI reduce the barrier to entry and make, say, accounting software more accessible and reduce the cost impacting businesses such as Xero?

The uncertainty today remains high, with a large range of outcomes. As it stands today, we know there is a significant amount of capital expenditure being spent globally on the build out of AI, therefore, that is why the clear winners to date have been those companies whose services or products are deeply embedded in the tech stack such as semiconductor, memory, and GPU/TPU.

When we think about the information technology stocks of the ASX, it is simply just far too early to know who the exact winners and losers of AI are going to be. While we continue to contemplate the future, the below are some pointers on how we are thinking:  

• Data ownership and customer engagement
  • Businesses that have access to first party data and not widely available to be aggregated by AI start-ups are more valuable and therefore will likely be harder to disrupt.
  • Apps or platforms that have high daily engagement will become more valuable versus those that are 3^rd or 4^th tier competitors.
• Adapt or die
  • AI will either be a threat or an accelerant to existing technology incumbents. Those that can invest behind it to accelerate growth in their core service/product offerings and/ or expand services will be rewarded by higher customer counts, more customer usage and likely higher pricing. Vice versa for those businesses that fail to adapt.

With 2026 underway, it is clear that AI as a topic will continue to dominant investor thoughts, corporate board room discussions and market news flow. Undoubtedly there will be winners and losers crowned, however the threat of AI from a competitive landscape and a likely higher opex investment environment does make the ability to forecast earnings for some companies at this time less certain. We believe that the significant sell off in “AI losers” is setting up a great re-rating opportunity in 2026, however, on a selected basis.