Rebuilding Value: How AI and Technology Are Reshaping the ASX in 2025

Three critical drivers underpin the sector’s recovery: the operational integration of artificial intelligence (AI), the continued strength of software-as-a-service (SaaS) business models, and heightened demand for cybersecurity solutions. Collectively, these developments are positioning the ASX technology sector for a more resilient and sustainable growth trajectory.

A Look Back: The 2021- 2024 Tech Decline

Between late 2021 and mid-2022, the S&P/ASX All Technology Index experienced a significant correction, declining by approximately 45% from its peak in November 2021 to its trough in June 2022. In contrast, the broader S&P/ASX 200 Index declined by just 7% during the same period, see chart 1 and 2. 

Chart 1: S&P/ASX All Technology Index and S&P/ASX 200 Nov 2021; Source: S&P Global, June 2025

Chart 2: S&P/ASX All Technology Index and S&P/ASX 200 Jun 2022; Source: S&P Global, June 2025

This disparity was primarily the result of tightening global monetary policy, elevated inflation, and increased investor scrutiny of high-growth, pre-profit technology companies. Capital rotated from speculative assets toward defensive sectors such as financials, energy, and consumer staples. Consequently, many Australian technology firms undertook cost-cutting measures, rationalized operations, and reprioritized profitability over growth.

While challenging, this period of adjustment created the structural discipline necessary for a more mature and performance-driven sector in the years that followed.

Drivers of the 2025 Recovery

The recovery of the Australian technology sector in 2025 is not merely a rebound in valuation, it reflects a structural transformation rooted in innovation, resilience, and sector-wide adaptation. The shift is closely aligned with three defining trends identified by industry leaders and supported by government policy and investor appetite.

According to a national survey by the Tech Council of Australia, the top three technology themes shaping the landscape in 2025 are:

• Artificial Intelligence (AI) (67%)
• Cybersecurity (17%)
• Sustainability and Circular Economy Technologies (7%)
  
  

Chart 3: Top Three Technology Trends 2025; Source: Tech Council of Australia, 2025

These trends signal a broader realignment in priorities, where value is increasingly derived from operational efficiency, data protection, and long-term sustainability. Unlike previous tech cycles driven by speculation or consumer hype, today's momentum is underpinned by real-world application, policy alignment, and tangible economic benefit.

Moreover, this thematic convergence is mirrored in market performance. Between June 20, 2022, and June 20, 2025, the S&P/ASX All Technology Index surged from 84.11 to 185.13, marking a 120.1% increase. In comparison, the broader S&P/ASX 200 Index posted more moderate gains over the same period. This stark outperformance illustrates a resurgence in investor confidence in ASX-listed technology firms that are demonstrating measurable progress in AI integration, cybersecurity capability, and environmental innovation. 

Chart 4: S&P/ASX All Technology Index and S&P/ASX 200 Jun 2025; Source: S&P Global, June 2025

Each of these three trends plays a distinct role in shaping the sector’s recovery:

1. Artificial Intelligence Integration

In 2025, artificial intelligence has transitioned from theoretical applications to enterprise-wide deployment. Rather than remaining confined to pilot projects, AI is now integrated into critical operations across Australian technology firms, driving efficiency, innovation, and new value creation.

Prominent examples include:

• WiseTech Global, which leverages AI to optimise global logistics, automate routing decisions, and enhance supply chain intelligence.
• TechnologyOne, which incorporates AI into its enterprise software to automate data processing, improve resource planning, and reduce manual intervention.
  
  

This evolution from research to practical implementation has significantly bolstered investor sentiment. The market is now clearly favoring companies that demonstrate real-world applications of AI, rather than speculative claims.

Latest AI Adoption Statistics (Q4 2024)

The most recent national data on AI adoption, reported in Q4 2024 by the Australian Government’s AI Adoption Tracker (See chart 5), confirms the accelerating trend toward AI integration among Australian businesses, particularly small and medium enterprises (SMEs):

• 40% of SMEs reported actively adopting AI (a 5% increase from Q3 2024).
• 21% indicated they were not yet aware of how to implement AI (down from 23%).
• 38% stated they had no plans to adopt AI (down from 42%).

Chart 5: AI Adoption Treds; Source: Australian Government’s AI Adoption Tracker, June 2025

These figures reflect steady progress in AI readiness and a reduction in both informational and implementation barriers. Businesses are increasingly recognising the commercial advantages of AI, particularly in automating workflows, improving customer service, and generating predictive insights.

The momentum is expected to continue into 2025, with many firms planning to expand their use of AI across multiple operational areas. This upward trajectory not only validates AI’s role as a defining technology trend but also strengthens the foundation of the sector’s ongoing recovery.

2. Cybersecurity

Cybersecurity has become a critical pillar of technological infrastructure in 2025, with both public and private sectors in Australia prioritizing investment in digital protection. In an environment marked by increasing cyber threats, evolving regulations, and growing reliance on cloud infrastructure, security is no longer optional, it is strategic.

Enterprises are accelerating adoption of:

• Threat detection and response platforms
• Secure cloud and network infrastructures
• Identity and access management systems
• Compliance and governance automation tools

The Australian cybersecurity market is expanding accordingly. According to Gartner (March 2025), enterprise security and risk management end-user spending is projected to reach AUD 6.17 billion in 2025, representing a 14.4% year-on-year increase from 2024.

Table 1: Enterprise Security & Risk Management End User Spending; Source: Gartner, March 2025

The largest sub-segment, security services, accounts for nearly half of all projected spending, reflecting the growing complexity of threat environments and the reliance on external expertise for mitigation and response.

This robust investment environment is benefiting ASX-listed cybersecurity firms, many of which are reporting strong contract pipelines, growing public-sector demand, and expanding product portfolios. As data protection regulations tighten and digital transformation accelerates, cybersecurity continues to be a high-growth, high-priority area within the Australian tech landscape.

3. Sustainability and Circular Economy Technologies

Sustainability and circular‑economy technologies are increasingly critical in Australia’s 2025 innovation landscape. National targets and investment underscore a strategic pivot toward using resources more efficiently, reducing waste, and embedding environmental accountability into industrial processes. The Australian government has launched a National Circular Economy Framework with the goal of doubling the circularity of the Australian economy by 2035, according to the Department of Climate Change, Energy, the Environment and Water (December 2024).

• The Circular Economy Framework (2024) established national ambitions to double circularity by 2035, shrink material footprints by 10%, increase productivity by 30%, and recover 80% of resources.
• CSIRO modelling indicates doubling circularity could add AUD 26 billion to GDP over a decade and reduce emissions by 14%, with the built environment, food/agriculture, textiles, electronics, mining, and transport among top impact sectors.
• Australia currently adds USD 1.20 of output per kilogram of material consumed, well below the OECD average of USD 2.50, and structural change could unlock an additional AUD 210 billion in GDP and 17,000 jobs by 2048 

Key Risks and Considerations

The recovery of the Australian technology sector in 2025 has been shaped by structural improvements and renewed investor optimism. However, beneath this resurgence lie several persistent risks that could influence the sector’s medium to long-term trajectory. While artificial intelligence, cybersecurity, and circular economy innovation have been the dominant growth drivers, maintaining momentum across these domains requires close attention to emerging vulnerabilities, particularly in valuations, macroeconomic exposure, and uneven sectoral development.

1. Valuation Sensitivity

Strong market performance since 2022 has led to elevated valuations across many ASX-listed tech companies. This is particularly evident in areas such as AI integration and circular economy innovation, where future potential often drives investor enthusiasm more than current profitability.

Although high valuations can reflect strong market confidence, they also increase vulnerability to correction. Some companies leading in environmental and sustainability technologies are trading at high multiples despite operating in early-stage or capital-intensive models. 

While the broader tech sector is starting to stabilise, valuations are still high and quite unpredictable. One clear example is the Electronic Equipment & Components industry, which is trading at an average P/E ratio of ~87×, significantly above sustainable historical levels. This average, however, masks extreme fluctuations, peaking at an unsustainable 1,035× in August 2022 before collapsing into negative territory (–405×) just weeks later. These erratic swings reflect outsized investor expectations colliding with earnings volatility, especially in capital-intensive or early-stage tech segments.

Chart 6: Electronic Equipment & Components industry PE Ratio Aug 2022; Source: Simply Wall Street, June 2025

Chart 7: Electronic Equipment & Components industry PE Ratio Sept 2022; Source: Simply Wall Street, June 2025

The recent valuation trends reflect strong investor interest, especially in areas with high future potential. However, these levels also suggest the market is sensitive to changes in earnings performance and broader economic conditions. Going forward, it will be important to focus on companies that not only align with key themes like sustainability and innovation but also show clear progress in growth, business fundamentals, and long-term scalability.

2. Global Macroeconomic Volatility

The Australian technology sector is increasingly embedded within global financial and supply chains. This makes it susceptible to shifts in international sentiment, regulatory regimes, and capital availability. Several global macroeconomic dynamics pose ongoing risk:

• Geopolitical instability, including the 2025 U.S. presidential election, evolving U.S.–China relations, and instability in key Indo-Pacific markets.
• Monetary policy uncertainty, where unexpected interest rate changes by major central banks could alter the flow of capital into high-growth sectors.
• Trade dependencies and commodity prices, which could affect the cost base for tech hardware, batteries, rare earth materials, and recycled inputs critical to sustainability solutions.

Sectors such as clean tech, resource recovery, and decarbonisation tools are especially exposed to both geopolitical supply chains and national subsidy programs. This underscores the importance of risk management strategies, supply diversification, and strong domestic infrastructure development.

3. Uneven Distribution of Gains

Although the broader tech sector appears to be thriving, the benefits are not shared equally. Large-scale companies in AI, cybersecurity, and sustainability technology are attracting significant investment and commanding premium valuations. Meanwhile, small and medium-sized enterprises (SMEs), which comprise roughly 97.2% (See chart 8) of Australian businesses, are being left behind.

Chart 8: Number of Business in Australia by Employee Size, 2024; Source:Finder, ABS, 2025

These SMEs face considerable challenges:

• Limited access to capital: Around 30% of businesses reported spending nothing on innovation between 2021–2023, with 19% citing lack of funding as a key barrier (Australian Bureau of Statistic, 2023)
  
• There is a $38 billion equity-funding gap for growth-oriented SMEs, only 21% of these firms manage to secure external equity  (Australian Business Growth Fund, November 2024), leaving most reliant on personal or family funding.

As a result, while headline indices show strong tech sector performance, a large portion of the SME base may not benefit proportionally. To ensure inclusive growth, investors and policymakers need to adopt a more selective and supportive approach, helping high-potential SMEs overcome structural and financial limitations.

Conclusion

The recovery of the Australian technology sector in 2025 reflects a broader evolution in how innovation is implemented, measured, and monetized. Unlike the speculative boom of 2021, the current rebound is grounded in stronger fundamentals, increased operational maturity, and the strategic deployment of transformative technologies.

With AI moving from theory to application, SaaS models proving their resilience, and cybersecurity becoming a national imperative, the sector is better positioned than ever to deliver long-term shareholder value.

However, the importance of prudent investment selection remains paramount. As growth returns, so too does the risk of overvaluation and complacency. The most compelling opportunities in 2025 will be found not in hype, but in companies that are building enduring value , through discipline, innovation, and execution.

References:

1. Deloitte. (2024). Technology industry outlook. https://www.deloitte.com/au/en/Industries/tmt/perspectives/technology-industry-outlook.html
2. Department of Industry, Science and Resources. (2025). AI adoption tracker. https://www.industry.gov.au/publications/ai-adoption-tracker
3. Finder. (2025). Business statistics in Australia. https://www.finder.com.au/credit-cards/business-credit-cards/business-statistics-australia
4. Gartner. (2025). Gartner forecasts enterprise security and risk management spending in Australia to grow 14% in 2025. https://www.gartner.com/en/newsroom/press-releases/2025-03-04-gartner-forecasts-enterprise-security-and-risk-management-spending-in-australia-to-grow-14-percent-in-2025
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6. Morningstar. (2023). Lessons from 2022's tech stock collapse. https://www.morningstar.com.au/markets/lessons-from-2022s-tech-stock-collapse
7. PRWire. (2024). Gartner forecasts enterprise security and risk management spending in Australia to grow 14.4% in 2025. https://prwire.com.au/pr/120487/gartner-forecasts-enterprise-security-and-risk-management-spending-in-australia-to-grow-14-4-in-2025
8. S&P Dow Jones Indices. (2025). S&P/ASX All Technology Index. https://www.spglobal.com/spdji/en/indices/equity/sp-asx-all-technology-index/#overview
9. Simply Wall St. (2025). Electronic equipment and components industry overview. https://simplywall.st/markets/us/tech/electronic-equipment-components
10. Tech Council of Australia. (2024). Australia’s tech leaders identify AI as defining tech trend in 2025. https://techcouncil.com.au/newsroom/australias-tech-leaders-identify-ai-as-defining-tech-trend-in-2025/
11. The Motley Fool. (2024). Here’s the growth outlook for ASX tech shares in 2025. https://www.fool.com.au/2024/12/06/heres-the-growth-outlook-for-asx-tech-shares-in-2025/