Plenty of technology shares have been sold down in recent months as uncertainty about how artificial intelligence will disrupt legacy business models spooks the market.
Some of these companies have been oversold, however, and for some, AI looks set to be a positive, allowing them to build products more cheaply and serve their customers better.
The analyst team at Citi has recently issued research notes to their clients on three ASX technology shares they think are looking cheap.
So let's take a look.
Xero Ltd (ASX: XRO)
Citi says that its analysis of the rate of business formation and insolvencies paints a positive outlook for Xero, "with business formation accelerating in Australia and US and insolvency trends improving in Australia and New Zealand, steady in UK and increasing in US''.
The Citi team added:
While there is typically a lag between both metrics and subscriber growth and churn for Xero, we see this as positive. One question is whether AI is driving an increase in business formation – in our view, it is likely too early but is an interesting trend to watch as it could be an offset to the disruption thesis.
Citi has a price target of $144.80 on Xero shares, compared with its current price of $77, which would represent an 88.1% return if achieved.
Seek Ltd (ASX: SEK)
The Citi team believes there are some headwinds coming for employment listings company Seek, but they still think the company is undervalued.
On the downside, Citi says job listings in Australia were down 3% year on year in February and 0.5% month on month, which they said wasn't surprising given the rate hike in February.
The Citi team added:
After the rate hikes in February and March, Citi economists expect another hike in May due to concerns over inflation expectations. These may pose downside risk on job volumes for the remainder of FY26 and 1H27 job volumes.
Despite these moderating factors, Citi has a price target of $26 on Seek shares compared with $14.44 currently. If achieved, this would be an 80.1% return.
Block Inc (ASX: XYZ)
This company, which owns payments brands Square and CashApp, announced last month that it would slash staff numbers by 4,000 to a new headcount of 6,000.
Citi said this has been the focus of much investor attention, but in its view, the more interesting AI development would be its ability to drive product releases "leading to potential gross profit upside".
The Citi team added:
Focusing on recent initiatives led by AI releases, our proprietary analysis shows potential gross profit growth outperformance vs consensus by about 180 basis points in 2026, about 430 basis points in 2027 and about 440 basis points in 2028, pushing consolidated GP growth to the high-teens.
Citi has a price target of US$85 on Block shares, compared to US$59.37 currently. That increase would represent a 43.2% gain.
Applied to the Australian-listed Block shares, it would mean an increase from $82.86 currently to $118.57.
The post What are the 3 ASX technology shares Citi rates as a buy at the moment? appeared first on The Motley Fool Australia.
Motley Fool contributor Cameron England 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 Block and Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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