Is this the end of moats?

Okay, that’s a deliberately provocative question… but perhaps not as provocative as it first seems.

But first, let’s define our terms.

Warren Buffett made the idea of an economic ‘moat’ famous: a sustainable competitive advantage that protects a business from competitors and allows it to earn attractive returns over a long period of time.

It might be a strong brand. Scale. High switching costs. Network effects. Intellectual property. Regulation. Or simply being able to do something more cheaply or effectively than everyone else.

Find a company with a wide moat, buy its shares at a reasonable price and – assuming the moat remains intact – time can do much of the hard work for you.

It’s a simple idea. And a very powerful one.

But AI is forcing us to reconsider which moats will continue to be sustainable now that we’re a very different technical world.

Is AI going to destroy them all?

No.

Will it leave them all untouched?

Also no.

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In reality? Some moats will probably remain largely unaffected. Some will narrow. And some might disappear altogether.

Which ones? And when?

I have no idea. Not with any certainty, anyway.

And nor does anyone else, despite the very confident predictions currently being made about what AI will and won’t do.

But we can (and should!) think in probabilities. We can consider where the risks are highest and ask whether the assumptions we’ve made about individual companies still hold.

I’d start with businesses whose advantage is mostly based on being able to do something others can’t.

Writing software. Producing advertising. Analysing documents. Creating images. Answering customer questions. Turning large amounts of information into something useful.

Until recently, those things required scarce skills, large teams, huge scale, or years of accumulated expertise.

Now? AI is making many of them cheaper, faster and more widely available.

That doesn’t mean software companies, creative businesses or consulting firms suddenly become irrelevant..

But it does mean that some of the capabilities that helped distinguish them may become easier for competitors – and customers – to replicate.

If your moat is essentially “we know how to do a thing”, what happens when the thing becomes much less difficult?

Then there are switching costs.

Some companies retain customers because leaving is genuinely difficult. Data has to be moved. Systems need to be rebuilt. Staff must be retrained. New software needs to be connected to everything else.

It’s expensive. It’s disruptive. And it can go wrong.

So customers stay put, even if they’re not particularly happy.

Those switching costs won’t disappear overnight. But AI can already help write code, translate data, build integrations and teach people how to use unfamiliar systems.

The moat may remain. It just might not be as wide as it used to be.

Brands could also come under pressure.

A trusted brand helps us decide what to buy. We recognise the name, know roughly what it stands for and feel reasonably confident we’ll get what we expect.

But what happens when an AI assistant makes the decision for us?

If I ask an AI agent to compare every insurance policy, mobile phone plan or retailer and choose the one that best meets my needs, familiarity might count for less.

Worse for the company, the primary customer relationship might belong to the AI platform that makes the recommendation, rather than the business that provides the product.

And I’d be wary of cost advantages that come largely from processing routine work more efficiently than competitors. If similar AI tools are available to everyone, today’s low-cost operator might find its rivals catching up.

Which brings me to something I’ve said before: simply using AI probably won’t be a competitive advantage.

It’ll be the ticket to the dance.

Oh sure, early adopters might enjoy a temporary boost to productivity and profit. But if competitors have access to much the same technology, those benefits will probably be competed away through lower prices, better products or both.

Good for customers. Good for society.

But not necessarily a wider moat.

Still, some competitive advantages look much less exposed than others.

AI can create a property website. It can’t recreate REA Group Ltd (ASX: REA)’s listings and audience.

It can assist medical research. It can’t quickly replicate CSL Ltd (ASX: CSL)’s plasma collection network, manufacturing capability, regulatory approvals and accumulated know-how.

And while AI can improve banking technology, it can’t simply hand a new entrant Commonwealth Bank of Australia (ASX: CBA)’s licence, deposit base, customer relationships and public trust.

Nor can it manufacture scarce mineral deposits, prime locations, physical distribution networks or genuine economies of scale.

That doesn’t make those moats invulnerable, by the way.

A company might retain its network but lose control of the customer interface. A trusted incumbent might keep its customers while finding its products easier to compare and its margins harder to defend.

So, what should investors do?

Don’t predict. Prepare.

Ask what the moat is actually made of.

Does the company own something genuinely scarce, or does it merely possess a capability that AI could commoditise?

Are its switching costs structural, or is changing providers just difficult and annoying?

Does it own the customer relationship, or could an AI assistant insert itself between the business and its customers?

And if AI makes the whole industry more productive, who keeps the benefit?

The company?

Maybe.

But it could just as easily be its customers, suppliers or competitors.

And, as always, valuation matters. A wonderful company can be a lousy investment if its share price assumes the moat will last forever.

If the future of that moat has become less certain, investors should demand a larger margin of safety.

The other thing? You don’t have to become a futurist, today. You don’t have to know, with any certainty, what things will look like in five or ten years. But the preparation I talked about earlier means understanding potential risks and weaknesses, so you’ll be more likely to notice if and when they start to impact a company’s profits or prospects.

No, AI probably isn’t the end of moats.

But it might be the end of taking their permanence for granted.

Fool on!

The post Is AI about to kill company moats? appeared first on The Motley Fool Australia.

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Motley Fool contributor Scott Phillips 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 CSL. The Motley Fool Australia has recommended CSL. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

CBA shares have picked up another sell rating, and this time the reasoning has a lot to do with the housing market in general.

Commonwealth Bank of Australia (ASX: CBA) are at $158.93 at the time of writing.

That values the country’s largest lender at roughly $265.7 billion.

The shares have fallen about 5% over the past twelve months.

Nowadays, three separate experts think there is further to go.

Why a broker is calling sell on CBA shares

Remo Greco of Sanlam Private Wealth has the bank rated as a sell.

He is not the only one.

Tony Locantro of Alto Capital and John Athanasiou of Red Leaf Securities both issued sell ratings in late August.

Greco was direct about what worries him.

Investors may want to consider cashing in some gains until a clearer picture emerges about the state of Australia’s housing market, the outlook for interest rates and the broader outlook for credit growth moving forward.

Athanasiou made a slightly altered version of the same argument.

Australian banking remains a mature industry, with intense competition across mortgages and deposits limiting the potential for outsized earnings growth.

What the FY26 result actually showed

However, the financial numbers were not the problem.

CBA delivered cash net profit after tax of $10,982 million in FY26, an increase of 7%.

Revenue also rose 7% to $30,153 million, and the net interest margin held steady at 2.05%.

The fully-franked dividend reached $5.05 per share across the year.

Home loans more than 90 days in arrears stood at 0.73%, while the loan impairment expense rose 9% to $788 million.

That is a good result from a very well-run bank.

It is also mid-single-digit growth, which matters once you look at the price being asked for it.

The valuation problem

CBA trades on a price-to-earnings (P/E) ratio of around 24.3 and yields around 3.2%.

In contrast, ANZ Group Holdings Ltd (ASX: ANZ) trades on 19 times earnings and yields 4.45%.

An investor is paying nearly 30% more per dollar of earnings at CBA while receiving notably less income for the privilege.

The premium has been justified for years by better technology, a stronger deposit franchise, and lower funding costs.

The question is whether those advantages are worth quite this much when profit is growing at 7%.

What could go wrong for CBA shares?

The housing cycle is the immediate risk.

Home loan applications have fallen roughly 15% since the May Federal Budget.

National home values dropped 0.9% in August and now are 3.6% below their March peak.

Australia’s 10-year government bond yield has reached around 5.19%, its highest level in 15 years.

ANZ now expects the Reserve Bank to lift the cash rate by 25 basis points to 4.60% in November.

A higher cash rate widens deposit margins, but it also slows credit growth and pushes arrears higher.

The case for staying put

CBA remains the highest quality bank in the country by some distance.

The company’s deposit base is unmatched, its technology spending is years ahead of its peers, and its credit book has already absorbed one full rate cycle without trouble.

Arrears of 0.73% are elevated but not all that alarming.

Foolish takeaway

CBA shares are not expensive by accident.

The market pays a premium because the bank has consistently earned one.

The real question is whether 24 times earnings is sensible for a business growing profit at 7% a year in a slowing housing market.

On balance, I think the risk now sits with the buyer rather than the long-term holder.

Trimming an oversized position looks reasonable, though I would not sell CBA shares outright on the strength of a broker note alone.

The post A broker just put a sell rating on CBA shares. Is Australia’s biggest bank finally too expensive? appeared first on The Motley Fool Australia.

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Motley Fool contributor Mark Verhoeven has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

ASX tech stocks have had a rough week.

To illustrate, on Wednesday, Xero Ltd (ASX: XRO) fell 5.2% to $98.90.

WiseTech Global Ltd (ASX: WTC) dropped 5.16% to $37.65.

These results occurred as the ASX 200 had its worst session in three months.

The question worth asking for investors is whether the selling has finally gone too far.

Why ASX tech stocks fell so far

The drop is not linked to any news out of the companies themselves.

Bond yields have risen sharply, with the US 10-year Treasury reaching 4.79% and Australia’s long bond returning to levels last seen in 2011.

Technology businesses earn most of their profit years into the future, so a higher discount rate hits them harder than anything else on the market.

This has unfortunately been compounded by a 60% chance of a Reserve Bank rate rise this month.

Here are a few tech stocks hit particularly hard.

1. WiseTech Global

WiseTech is the most interesting name on this list.

The company’s shares have fallen from a 52-week high of $99.70 to $37.65, which is a decline of more than 60%.

In its latest results, FY26 revenue rose 79% to US$1,395.9 million, helped enormously by the e2open acquisition.

Underlying EBITDA climbed 56% to US$644.5 million and free cash flow increased 43% to US$410.7 million.

The problem lies in what the future holds for the company.

FY27 guidance is for revenue growth of just 6% to 10%, and an active ACCC investigation is adding doubts in the back of investors’ minds.

At 50 times earnings, WiseTech is trading at a significant multiple for a company only projected to grow revenue in the single digits.

2. Xero

Xero is the highest quality operator of the three and now is within 70 cents of its 52-week low.

FY26 operating revenue rose 31% to $2.75 billion and annualised monthly recurring revenue jumped 37% to $3.27 billion.

The company added 506,000 customers to reach 4.92 million globally, while average revenue per customer rose 23% to $55.44.

Adjusted EBITDA grew 18% to $757.4 million, though net profit fell 27% to $167.4 million on Melio acquisition costs.

Chief executive Sukhinder Singh Cassidy noted the strength of the platform:

We have powerful momentum across our markets, and delivered strong EBITDA growth while absorbing the Melio integration.

FY27 guidance points to revenue of $3.62 billion to $3.73 billion, which is another year of roughly 30% growth.

3. Life360

Life360 Inc (ASX: 360) is the highest risk of the three.

Shares have fallen nearly 40% year-to-date.

Despite this, second-quarter revenue rose 38% to US$159 million and adjusted EBITDA jumped 53% to US$31.1 million.

However, look a little deeper and the picture unravels.

Net income fell 17.8% to US$5.1 million, and the net income margin halved to 3% from 6%.

At such high multiples, margin reductions are very bad news for investors.

What could make ASX tech stocks work from here

Two things would give ASX stocks some form of relief.

The first is any sign that the Reserve Bank will not need to raise rates. That is because falling yields lift long-duration valuations, such as those belonging to tech stocks, immediately.

The second is evidence that these businesses can convert revenue growth into profit growth without having to rely on acquisitions.

Foolish takeaway

Xero looks best positioned in the short-term, because it is growing at 30% with a strong network effect and it trades near a 52-week low.

WiseTech is cheaper than it was but still carries an unresolved regulatory investigation.

In contrast, Life360 has the strongest growth and the weakest proof of profitability.

A year of falling prices has made ASX tech stocks far more interesting than they were in September 2025.

It has not yet made them safe, and anyone buying here should expect more volatility before the rate cycle settles.

The post Are these ASX tech stocks finally a buy again? appeared first on The Motley Fool Australia.

More reading

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Motley Fool contributor Mark Verhoeven 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 Life360, WiseTech Global, and Xero. The Motley Fool Australia has positions in and has recommended Life360, WiseTech Global, and Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.