Xero Down 16%, Tech Slides on AI Fears

The Australian share market closed higher on Wednesday, with the S&P/ASX 200 rising 0.8% to finish at 8,927 points. However, that headline gain masked sharp weakness in the technology sector, where selling pressure intensified into the close. As of the final session, Information Technology dropped 9.4%, making it the worst-performing sector on the index.

Over the past five days, the benchmark remained broadly flat, yet it still traded 2.1% below its 52-week high. Market breadth leaned negative, with 120 stocks ending lower compared with 76 gainers. 

What explains the divergence between rising indices and collapsing tech names?

Xero and WiseTech Lead the Declines

Xero Ltd shares closed down 16% at $80.82, marking a fresh 3-year low. The stock now trades at levels last seen in early 2023, far below its prior highs near $200. Technology One fell 10.47% to $22.65, while WiseTech Global declined 10.26% to $51.49, also touching three-year lows.

These moves occurred despite no new company-specific shocks on the day. Instead, the declines mirrored a broader retreat from software stocks, both locally and offshore. Investors continued to unwind positions as concerns mounted over artificial intelligence reshaping pricing power across the sector.

AI Disruption Shakes Software Confidence

AI fears dominated market conversations after the release of new autonomous software tools in the United States. Global investors questioned whether traditional subscription-based software models can defend margins as AI-native competitors lower costs and reduce switching barriers.

Overnight, U.S. software stocks recorded their worst monthly performance since October 2008. That weakness flowed directly into Australian trading. The S&P/ASX 200 Technology Index now trades down 16% year to date and nearly 40% from its September highs. 

Its relative strength index dropped to 19, signaling extreme oversold conditions not seen since the dot-com era.

Broader Market Finds Support Elsewhere

While tech stocks struggled, other sectors lifted the index. Materials surged 3.6%, energy gained 3%, and financials rose 0.8%. Yancoal Australia jumped 9%, South32 advanced over 6%, and Regis Resources climbed more than 6% as commodity prices strengthened.

Gold futures rallied over 3% to trade above $5,098 per ounce, while oil prices also pushed higher. These moves supported resource-heavy names and helped offset the drag from technology stocks.

Source: Janey_Analyst Via X

Volatility Eases as Fear Peaks

Despite sharp equity swings, implied volatility eased slightly. The S&P/ASX 200 VIX fell 1.34% to 11.42, suggesting traders priced in less near-term market stress outside the tech space. Currency markets also remained calm, with the Australian dollar holding near 70 U.S. cents.

Still, confidence within the software sector continued to erode. Only a minority of global software firms exceeded revenue expectations this reporting season, reinforcing fears that growth rates may slow faster than valuations imply.

Valuations Under Scrutiny

Before the sell-off, several ASX tech leaders traded at elevated earnings multiples. As sentiment shifted, investors reassessed those premiums. Analysts noted that the current correction reflects confidence compression rather than collapsing balance sheets.

For now, market participants remain cautious. Until clarity emerges on how AI reshapes revenue models, technology stocks may continue to face pressure, even as the broader Australian market finds support from commodities and financials.