The tech sector has been a difficult place to invest over the last couple of years.
Rising interest rates have put significant pressure on valuations, leading to some tech shares pulling back materially.
While this is disappointing, this weakness could have created a buying opportunity for investors in some cases.
For example, two beaten down ASX tech shares that have been named as buys with huge upside potential are listed below. Here's what brokers are saying:
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Megaport Ltd (ASX: MP1)
The first beaten down ASX tech share that could be in the buy zone is Megaport. This leading global provider of elastic interconnection services has seen its shares crash by 66% from their 52-week high.
Goldman Sachs believes this is a buying opportunity. Particularly given its exposure to powerful tailwinds such as the structural shift to the cloud continuing. It commented:
We believe MP1 will benefit from strong structural tailwinds from the adoption of public cloud including multi-cloud usage and the transition towards NaaS technologies. While acknowledging mixed near-term execution around the partner channel and the new MVE product, we are Buy rated on the name as we remain confident MP1 has a clear product advantage vs. peers and a decade-long runway for robust growth. Despite the weaker operational trends in 2Q23, we expect still robust top-line growth, with the increased focus on profitable growth supporting an attractive earnings profile over FY23-25.
The broker has a buy rating and $8.20 price target on its shares. This is significantly higher than the current Megaport share price of $4.41.
Readytech Holdings Ltd (ASX: RDY)
Another ASX tech share to look at is Readytech, which is down by almost a third from its 52-week high.
Readytech owns a portfolio of enterprise software businesses across several market verticals such as higher education and local government. These businesses operate in market niches that are under-served by both large and small enterprise software competitors.
Goldman Sachs is also bullish on Readytech. It expects the company to continue to deliver strong organic growth in the coming years. In light of this, it sees a lot of value in its shares at the current level. The broker commented:
In our view, RDY will continue to grow mid-teens organically while making accretive acquisitions, underpinned by solid software metrics such as low churn at ~3% and high LTV/CAC. RDY trades at a large discount to ASX tech peers, both on an absolute and growth-adjusted basis, which we believe is too wide considering RDY's business quality and growth outlook.
Goldman has a buy rating and $4.40 price target on its shares. This implies potential upside of 48% from the current Readytech share price of $2.97.
