Rudi’s View: Un-Bubbling The AI Bubble Talk

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This story features TECHNOLOGY ONE LIMITED, and other companies.
For more info SHARE ANALYSIS: TNE
The company is included in ASX50, ASX100, ASX200, ASX300, ALL-ORDS and ALL-TECH

Cool-headed expert voices are pushing back against the scaremongering narratives around irrational exuberance and AI excitement pushing equities into a bubble-like environment.

By Rudi Filapek-Vandyck, Editor

Have the relentless scaremongering and associated weakness in share prices of ASX-listed growth companies and AI-beneficiaries by now passed a turning point?

One thing we can report with certainty is those voices who remained loyal to the theme (turning themselves into ‘contrarians’) are starting to speak up. Judging from cautiously rising share prices, at least some inside the local investment community appear to be paying attention.

Strategists at LGT Wealth believe the Q3 US results season –yet again much stronger than forecast– showcased all the ingredients to silence general anxiety about a potential repeat of the post-1999 Nasdaq meltdown.

Analysts at Morgan Stanley have been visiting clients, traveling half the globe in what must have been a grueling exercise, only to discover their stoic confidence in the AI revolution building was mostly met with scorn, doubt and lots of questions.

The one question most asked: is there an AI bubble brewing?

Morgan Stanley’s response: if one defines a ‘ bubble’ by lack of value creation underneath rising share prices, then the answer is categorically no, because there’s a lot of value creation going on.

While fully acknowledging the key risk is for new development and further break-throughs to occur at slower pace than a sceptical and impatient investor community might require, Morgan Stanley’s house view is for 2026 to become the year when AI starts delivering on its many promises.

Soon US companies will start reporting on efficiencies and margin increases achieved through successful AI implementation. At least, such is the anticipation, also supporting the view today’s share prices are not exorbitantly high as more growth is waiting to be revealed.

The analysts are in particular excited about the pending arrival of agentic shopping assistants that will introduce shoppers to a whole new experience, with companies like Shopify preparing to take the lead on the next innovation poised to woo friend and foe.

JP Morgan Is equally confident

Echoes of Morgan Stanley’s optimism (or is that ‘confidence’?) are equally reflected in the latest strategy update by JP Morgan strategist Dubravko Lakos-Bujas.

The following quote summarises it nicely:

“Despite AI bubble and valuation concerns, we see current elevated multiples correctly anticipating above-trend earnings growth, an AI capex boom, rising shareholder payouts, and easier fiscal policy.

“More so, the earnings benefit tied to deregulation and broadening AI-related productivity gains remain underappreciated.”

JP Morgan’s 2026 year-end target for the S&P500 is 7500 (currently at 6812), underpinned by expectations for above-trend earnings growth of 13%-15% for “at least the next two years” alongside expectations of two more Federal Reserve rate cuts followed by an extended pause.

In defence of the premium valuations for AI stocks, Lakos-Bujas points out those companies offer stronger earnings visibility, higher pricing power, lower balance leverage, and a consistent track record of returning shareholder capital relative to their S&P470 peers trading at 19x.

Aussie Growth & Tech

Locally, stockbroker Morgans observes even after post mid-year share price weakness, the ASX-technology sector is still trading on a notable premium to its own average historical valuation (average forward-looking PE 40x versus 30x).

How to explain this?

Morgans’ number crunching suggests the market is either pricing in two more rate cuts from the RBA (the in-house view has now shifted to two rate hikes instead) or investors are already looking forward to ongoing strong growth projections for FY27.

Assuming the latter, the broker finds most ASX-listed technology stocks seem fairly valued.

Morgans’ key favourites in the space are: TechnologyOne ((TNE)) and Megaport ((MP1)).

Others carrying a Buy or Accumulate rating from this broker are WiseTech Global ((WTC)), Xero ((XRO)), Objective Corp ((OCL)), SiteMinder ((SDR)), and Catapult Sports ((CAT)).

Seek ((SEK)) and REA Group ((REA)) are preferred among classified players.

Oversold opportunities

Wilsons too has zoomed in on what has been, at times, quite the savage experience for shareholders in local growth and technology companies, as the sector in Australia performed noticeably worse than peers offshore and share market indices generally.

Wilsons conclusion is that attractive opportunities are now abound, for “patient capital willing to look through near-term volatility”, with the sector seen as oversold.

The latest strategy update zooms in on two of Wilsons’ favourites; TechnologyOne and Xero.

The former fully deserves to trade at a premium to its own history, the report argues, with management continuing to execute well and as the company’s growth trajectory has been structurally improved, including through AI products to be launched next year.

With plenty of scepticism around regarding Xero’s acquisition of loss-making Melio, Wilsons remains confident in management’s ability to now compete more wholesomely with Intuit in the US marketplace, underpinning a healthy pace of growth for years to come.

For those who might have missed Ord Minnett’s post-sell off key technology sector ideas in this week’s Weekly Insights:

• Car Group ((CAR))
• Energy One ((EOL))
• Hansen Technologies ((HSN))
• Life360 ((360))
• Qoria ((QOR))
• Xero ((XRO))

Goes without saying, multiple stocks mentioned are equally included in my lists and selections on the dedicated section of the website to my research into All-Weather stocks:

https://fnarena.com/index.php/analysis-data/all-weather-stocks/

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions.)  

P.S. I – All paying members at FNArena are being reminded they can set an email alert for my Rudi’s View stories. Go to My Alerts (top bar of the website) and tick the box in front of ‘Rudi’s View’. You will receive an email alert every time a new Rudi’s View story has been published on the website. 

P.S. II – If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

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