Xero Shares Dive Amid Tech Sector Slump and AI Concerns

Xero Ltd (ASX: XRO) shares declined by 13.95% to $82.69, reaching a multi-year low not observed since early March 2023. The stock briefly fell to $81.81 in early trade.

"Xero Ltd (ASX: XRO) shares declined by 13.95% to $82.69, reaching a multi-year low not observed since early March 2023."

Market Context: AI Disruption and Tech Sector De-risking

The primary factor contributing to Xero's share price decline is a broader slump across the technology sector. The S&P/ASX All Technology Index (ASX: XIJ) experienced a 7.77% reduction.

This downturn is attributed to increasing investor apprehension regarding the potential for artificial intelligence (AI) to disrupt traditional software businesses by automating tasks more rapidly and cost-effectively than existing platforms.

"This downturn is attributed to increasing investor apprehension regarding the potential for artificial intelligence (AI) to disrupt traditional software businesses..."

This concern has led to declines in technology stocks globally, particularly those relying on subscription software revenue. Investors appear to be de-risking by shifting capital away from tech stocks pending further clarity on AI's impact.

Company-Specifics: Growth Strategy and Melio's Path

Xero, a cloud accounting software provider, is perceived as a premium-priced software company. The company released an investor briefing outlining its growth strategy, highlighting long-term opportunities from AI and continued expansion in the United States following its acquisition of Melio.

However, Xero also acknowledged that Melio is not projected to achieve adjusted EBITDA breakeven on a run-rate basis until the second half of fiscal year 2028.

Analyst Perspectives: Mixed Views Amidst Broader Concerns

Despite the market sell-off, some analysts maintain a positive long-term outlook for Xero.

Macquarie has retained an "outperform" rating and adjusted its price target upward to approximately $234 per share, citing Xero's competitive position and growth potential.

Conversely, Jefferies reduced its price target to about $101, referencing margin pressure and Melio's extended path to profitability.

"Analysts generally agree that the decline reflects broader tech-sector concerns rather than a deterioration in Xero's core business fundamentals, with long-term growth drivers reported as intact."

Analysts generally agree that the decline reflects broader tech-sector concerns rather than a deterioration in Xero's core business fundamentals, with long-term growth drivers reported as intact.