Xero's AI Scare Looks Overdone as Pricing Power and Share Gains Show Through

A broad software sell-off and a costly US acquisition weighed on the stock, but fund managers point to new products and rivals losing ground.

21 Sep 2026 · 3 min read

Xero has spent 2026 caught in the same AI-disruption fear trade that hit WiseTech, Life360 and a string of other ASX software names, compounded by margin pressure from its US Melio acquisition, even as fund managers increasingly argue the company's own product roadmap shows AI becoming a monetisation opportunity for Xero rather than a threat to it.

An AI scare, plus a costly acquisition

Atlas Funds Management named Xero alongside CSL as one of its picks for a recovery over the following twelve months, noting the accounting software company had not made significant missteps over the prior year beyond a margin decline tied to integrating its Melio acquisition, and general concern that AI would displace software-as-a-service business models broadly. Vertium Asset Management, sitting on a hold, agreed Xero does not face the same structural issues it sees at WiseTech, acknowledging Xero overpaid for Melio but noting the share price has already recovered a lot of the ground it lost since that deal.

One manager, two minds within the same month

Atlas's own view shifted within July. Having initially flagged Xero as a recovery pick, further research left the fund on a sell rating instead, reasoning that although Xero's pricing is low enough that businesses are unlikely to want to build in-house alternatives, unlike the risk it sees facing more expensive enterprise software like WiseTech's CargoWise, the risk of getting AI-driven accounting automation wrong is high enough to warrant caution regardless.

The bull case: cheap, executing well, and monetising AI

Pendal Group made one of the more emphatic bull cases in July, arguing a stock thrown into the market's losers category is actually a winner, pointing to accelerating growth in the US, improving cost efficiency and a strong AI product strategy, all while trading cheap on any measure, sub 15 times next-twelve-months EBITDA, with a reverse discounted cash flow analysis implying the market is pricing in essentially no future growth.

It is cheap no matter how I look at it, trading sub 15 times NTM EBITDA. If I do a reverse DCF, it's trading as if it has no future growth being priced in.

— Pendal Group, Article, July 2026

Airlie Funds Management added a new position in July, citing the broader technology and healthcare sell-off as an opportunity, and Paradice Investment Management made a similar point in August, describing Xero as one of the hardest-hit technology names despite what it views as a decent competitive moat against AI, arguing the technology is unlikely to disrupt businesses like Xero as quickly as the market is currently pricing.

New products and pricing power show up in the numbers

Xero backed up the bull case with concrete moves. Pendal Group reported the launch of Xero Workpapers Plus in Australia, priced at A$45 per user per month, offering AI-powered workflow automation, ATO pre-population and compliance worksheets designed to replace spreadsheet-based processes for accounting firms, entering early access in August ahead of a broader 2026 rollout. In August, Xero also announced price rises of 7 to 8 percent in the US and 6 to 8 percent in New Zealand effective from October, alongside a phase-out of multi-organisation discounts, moves Pendal read as reinforcing genuine pricing power.

Intuit management later acknowledged increased competition was coming from two players, including XRO. This is supported by XRO's US subs growth which has accelerated in recent years.

— Pendal Group, Newsletter, August 2026

Pendal also pointed to competitor results as supporting evidence: UK-based Sage reported organic revenue growth accelerating to 11 percent, ahead of expectations, a positive read-through for the sector, while US rival Intuit disclosed slowing subscriber growth in its core small business franchise, which management partly attributed to increased competition, naming Xero as one of the players taking share.

What fund managers say they are watching next is whether the Workpapers Plus rollout gains traction through the rest of 2026, whether the US and New Zealand price increases hold without denting subscriber growth, and whether further competitor results keep validating the view that Xero is gaining share rather than being disrupted, the evidence that would need to keep building for the market's AI-driven discount to fully unwind.