Seemingly contradictory fears that AI will significantly disrupt software companies while also being too costly triggered widespread selling on Friday, sending the ASX 200 down 1.4%.
However, despite 9 of 11 sectors finishing down and the ASX 200 losing 125.90 points, or 1.4%, to 8917.60, the benchmark still managed to gain 2.4% for the week.
A big theme of the selling was around fears that the margins of software companies could be significantly eroded by AI, causing the ASX tech sector to lose a significant 23% of its value over the past month.
Margins crunched
Some of the worst hit on Friday included WiseTech Global shares (ASX: WTC), down 10.4% to $42.62, Xero shares (ASX: XRO) down 4.5% to $73.49 and TechnologyOne shares (ASX: TNE) down 7.1% to $20.17.
The fast-moving technology crunch is hitting software companies particularly hard as the software as a service model is being challenged on a number of angles with the price of work done falling and the number of people needed being reduced by AI.
In simple terms, many software companies are facing margin compression from every direction even though the more general opinion about AI seems to be that it is becoming too costly.
Rise in gold softens falls
It wasn’t all bad with a recovery in the gold price to just under US$5000 an ounce reducing losses.
That wasn’t enough for many gold stocks though, with Northern Star shares (ASX: NST) down 3.5% to $28.37, Newmont shares (ASX: NEM) down 1.9% to $169.12, and Genesis Minerals shares (ASX: GMD) down 4.65% to $6.87.
Take it to the bank
After a stellar week for banks on the back of a great result from Commonwealth, investors took some profits with Commonwealth Bank shares (ASX: CBA) down 1.4% to $176.20, National Australia Bank shares (ASX: NAB) off 1.1% to $46.01 and Westpac shares (ASX: WBC) falling 1.2% to $40.52.
The Westpac result was fairly strong at $1.9 billion net profit, but investors were turned off by a fall in net interest margins.
ANZ shares (ASX: ANZ) were the outlier, up 1.3% to $40.89 as brokers upgraded profit expectations after a better than expected performance on cutting costs.
AMP shares (ASX: AMP) jumped out of oversold territory with a 9% rise to $1.39 as its mixed financial results continued to be analysed for positives such as increasing funds under management and rising underlying net profits against negatives such as tighter margins in its platform business and falling statutory net profit due to legal settlements.
Austal hits choppy waters
Amidst all of the generalised falls, ship builder Austal (ASX: ASB) stood out with a massive 22.8% plunge to $4.87 after slashing current financial year earnings guidance by 18% to $110 million following a doozy of an accounting error.
Shares in Cochlear (ASX: COH) fell 18.9% to $199.22 after a 21% fall in net profit to $162 million and guidance that full-year profit would be at the lower end of the $435 million–$460 million range added some pessimism to trade.
Another falling star was Webjet (ASX: WEB) with shares being crunched by 25.2% to 58¢ after it called off takeover talks with Helloworld and BGH Capital and also cut its pre-tax and interest guidance to $28–29 million, excluding Webjet Business Travel.
It wasn’t all bad news for individual stocks with shares in GQG Partners (ASX: GQG) up 7.8% to $1.73 on higher second half distributable earnings and a 10.8% rise in funds under management to $US164.3 billion in 2025.
Shares in furniture seller Nick Scali (ASX: NCK) fell 22.3% to $18.48 as weaker than expected sales in Australia and New Zealand took the gloss off strong UK results.
The week ahead
US movements are likely to be significant in the coming week, with a report on inflation holding the key to the direction of interest rates there.
With the job market strengthening, the Federal Reserve is likely to continue to rebuff calls for lower rates due to the risks of higher inflation.
Unless the inflation print shows consumer inflation slowing sharply rather than gently easing, rates are likely to stay on hold despite Trump’s desire for a bit more interest rate stimulus before the mid-term elections.
Both the local Reserve Bank and the US Federal Reserve will release their monetary policy meeting minutes this week with the RBA’s first interest rate rise in two years being explained in more detail.
Data on Australian wages and employment will also be released.
Massive week for the miners
Locally, it is a massive week for the big miners, with BHP (ASX: BHP) and Rio Tinto (ASX: RIO) earnings reports both out.
Both companies are likely to have received a big boost from increasing copper prices and the remaining strength in iron ore, although the forward guidance will be particularly interesting.
Both of the mining giants have had failed mergers – BHP with Anglo American and Rio Tinto with Glencore, so their future growth options will come under close scrutiny.
There are also a swag of local profit reports to watch out for including JB Hi-Fi, Wesfarmers and Telstra.
Other profits to watch out for include Blue Scope Steel, GPT, Stockland, Ansell, Bendigo and Adelaide Bank, Baby Bunting, Challenger, SEEK, Sims, Suncorp, Mirvac, Fletcher Building, Santos, Magellan Financial, Vicinity, Dexus, Transurban, Goodman Group, Auckland International Airport, Brambles, Whitehaven Coal, Medibank, QBE, Megaport, Netwealth, Qube, Inghams, Latitude Group, Polynovo, Mineral Resources and Perseus Mining to name just a few.
