Why are ASX 200 tech shares having such a top run on Thursday?

ASX tech shares are surging back in Thursday morning trading.

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Key points

  • ASX 200 tech shares are outperforming today after the NASDAQ led gains on Wall Street last night
  • Value may also be emerging in the sector after a bruising sell-off, with Goldman Sachs reiterating its  buy  call on Xero
  • But the volatility isn't over and it's likely profitable tech shares that are set to do better in a higher interest rate environment

ASX 200 tech shares are back in favour today with the sector topping the leader board on the back of a positive lead from Wall Street overnight.

The group gained 2.52% in morning trade with the consumer discretionary sector in second spot with a 1.71% advance. Some of the star performers on the ASX today include the Block Inc (ASX: SQ2) share price, which has rallied 4.15% to trade at $100.66 at the time of writing. WiseTech Global Ltd (ASX: WTC) has also added 2.92% to $59.21 a share.

At the same time, the S&P/ASX 200 Index (ASX: XJO) is 0.81% higher.

ASX 200 tech shares on a roller coaster

Investors can thank the US for the outperformance of ASX 200 tech shares. While all three major US share indices gained more than 1% last night, the tech-heavy NASDAQ rallied 2.1% to snap a seven-session losing streak.

Tech shares have taken the brunt of the market selloff triggered by interest rate hikes. Higher rates are particularly bad news for growth shares like tech.

Given how far many of these shares have fallen, it is unsurprising to see bargain hunters starting to emerge.

Is there value in ASX 200 tech shares?

There could be value in the Xero Limited (ASX: XRO) share price too, according to Goldman Sachs. The broker reiterated its buy call on the cloud-based accounting platform following the company's Xerocon event.

The Xero share price is up 3.68% to $87.24 in morning trade. Goldman has a 12-month price target of $111 per share.

Meanwhile, WiseTech reaffirmed its FY23 revenue and earnings guidance in its investor presentation on Thursday. The logistics software group is expecting revenue to grow 20% to 23% to between $755 million and $780 million this financial year.

Earnings before interest, tax, depreciation, and amortisation (EBITDA) is tipped to grow 21% to 30% to $385 million to $415 million.

Are the good times for tech back?

While ASX 200 tech shares are enjoying a strong bounce today, the share market volatility gripping the sector is unlikely to abate.

Central banks, including ours, are resolute in aggressively hiking interest rates to tame runaway inflation.

The higher rates will continue to be a headwind for growth shares around the world, and ASX 200 tech shares are not immune.

What to focus on in a higher rate environment

However, tech shares that are profitable could weather the interest rate storms better than those that are still a long way from turning a buck.

When rates are close to zero, investors would buy into a sexy story with the promise of blue sky returns down the track.

But when rates and bond yields go up, the focus will return to fundamentals and profits.

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Motley Fool contributor Brendon Lau has positions in Block, Inc. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Block, Inc., WiseTech Global, and Xero. The Motley Fool Australia has positions in and has recommended Block, Inc., 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.

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