Are ASX tech stocks setting up for their next big run?

ASX tech stocks have had a rough period.

Valuations have reset, sentiment has cooled, and concerns around interest rates and artificial intelligence (AI) disruption have weighed on the sector.

But when I look at it now, I do not see a sector to avoid.

I see a sector that is becoming very interesting again.

The pullback has changed the conversation

Not that long ago, many ASX tech stocks were trading at very demanding valuations.

That made it harder to justify new investments, even in high-quality businesses.

Today, that backdrop looks different.

A number of leading companies have pulled back significantly, in some cases by 30% to 50% or more. That does not automatically make them cheap, but it does change the starting point for future returns.

For me, that is the key shift.

The businesses are still growing

What stands out is that, in many cases, the underlying businesses have not stopped progressing.

Companies like WiseTech Global Ltd (ASX: WTC) continue to expand their platforms and grow revenue, even as the share price has come under pressure.

TechnologyOne Ltd (ASX: TNE) keeps delivering steady earnings growth through its SaaS model, with high levels of annual recurring revenue and strong customer retention.

And Megaport Ltd (ASX: MP1) is building out critical digital infrastructure that supports cloud computing and, increasingly, AI workloads.

These are not businesses standing still.

They are still investing, still expanding, and still positioning for long-term growth.

AI is a risk, but also an opportunity

A big part of the recent weakness has been tied to artificial intelligence.

There is a concern that new technologies could disrupt existing software providers or compress margins over time.

I think that risk is real. But I also think it is only part of the story.

Many of these companies are actively incorporating AI into their platforms. They are not passive observers. They are participants.

In some cases, AI could enhance their products, improve efficiency, and strengthen their competitive position.

That is why I find it difficult to take a purely negative view.

Volatility is part of the journey

Tech stocks are rarely smooth investments.

They tend to move in cycles. Periods of strong performance are often followed by sharp pullbacks, especially when expectations become stretched.

We are now in one of those reset phases.

That can feel uncomfortable, but it is also where long-term investors can start building positions.

The key, in my view, is focusing on quality.

Strong balance sheets, recurring revenue, and clear competitive advantages matter a lot in this space.

Foolish takeaway

ASX tech stocks are not without risk, and they are unlikely to move in a straight line from here.

But after a significant pullback, I think the sector is becoming more attractive for long-term investors.

The businesses are still growing, the themes are still intact, and valuations are no longer as stretched as they once were.

For me, this looks like a period where patience and selectivity could be rewarded over time.

The post Are ASX tech stocks setting up for their next big run? appeared first on The Motley Fool Australia.

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Motley Fool contributor Grace Alvino has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Megaport, Technology One, and WiseTech Global. The Motley Fool Australia has positions in and has recommended WiseTech Global. The Motley Fool Australia has recommended Technology One. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.