After a steep slide from around $195 to under $100 in recent months, Xero finds itself in the middle of two powerful storylines, global anxiety that artificial intelligence could undercut subscription software and concern that its multibillion dollar acquisition of US bill payment platform Melio is an expensive bet on growth. The company, headquartered in Wellington and listed on the ASX, built its reputation on cloud accounting for small businesses and bookkeepers and is now trying to convince a wary market that its mix of data, infrastructure and new AI tools makes it harder to disrupt than many assume.
Under the surface, global software names that depend on recurring subscription revenue have been marked down as investors imagine AI tools making it easier for users to build their own solutions. Well known platforms like Atlassian, Microsoft and SAP have all felt this pressure, particularly after a US AI specialist launched a coding assistant that lets relatively casual developers spin up more sophisticated apps more quickly. Xero’s leadership has experimented with similar tools to see how easily its own product could be cloned and found that while basic workflows can be imitated, the real hurdle is replicating millions of live bank feeds, the underlying payments plumbing and the proprietary data used to train its models.
Inside Xero’s product suite, AI is already embedded in practical features. Around 2 million of its 4.6 million subscribers use long standing AI driven tools, while roughly 300,000 have started using newer generative AI functions rolled out only a few months ago. These AI agents automate tasks such as drafting invoices, matching bank transactions to accounting records and turning raw numbers into more digestible visuals. One assistant even helps small business owners test scenarios like whether they can afford a specific purchase next month. Xero plans to roll out more AI agents over the coming year with a roadmap to begin charging customers directly for these advanced capabilities from 2027, creating a potential new revenue stream layered on top of existing subscriptions.
Looking out a few years, the company seems to be betting that accounting software will evolve from traditional user interfaces to systems where customers largely supervise AI agents that do the heavy lifting. Market analysts currently see the core of Xero’s offering as a high accuracy database in a specialist industry where AI is more likely to shift the competitive frontier between existing players than wipe out the category altogether. Xero has reaffirmed its financial guidance and now expects Melio to reach break even in the second half of 2028, slightly ahead of some earlier expectations, and the business is presenting the US acquisition as a way to more than double revenue to about NZ$4.2 billion within three years. While that path still carries execution risk and relies on AI enhancing rather than eroding the model, the early share price bounce after its latest investor update suggests the market is at least open to the idea that Xero’s data and infrastructure might give it a real, if untested, edge in the AI age.
