Xero Ltd (ASX: XRO) shares are rising on Tuesday morning.
At the time of writing, the cloud accounting platform provider's shares are up 3% to $96.51.
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Why are Xero shares rising?
Investors have been buying the company's shares after it outlined its long-term growth opportunity in artificial intelligence (AI) and the United States, giving investors more confidence in where the business is heading next.
Xero released the update ahead of an investor briefing, where it will provide detail on its AI strategy and the progress it is making in the large and competitive US accounting and payments market.
While there was a lot of information in the announcement, the key message was that Xero believes it has a clear pathway to drive stronger growth by combining accounting, payments, and AI on one global platform.
Artificial intelligence push
At the centre of the update was Xero's approach to artificial intelligence. Management said the company is already using AI and machine learning across its platform and now sees a much larger opportunity as it moves from being a "system of record" to a "system of action and decision making" for small businesses.
This means using AI to automate routine tasks, surface insights, and help customers make better decisions faster.
Xero revealed that more than two million subscribers are already benefiting from its AI features, with over 300,000 using newer generative AI tools launched last year. These tools are helping customers save time, manage their businesses more effectively, and unlock growth opportunities, which management believes will support higher engagement and, over time, monetisation.
United States market
The other major focus was the United States, where Xero is aiming to significantly scale its presence. This strategy has been strengthened by the recent acquisition of US-based payments platform Melio, which allows Xero to bring accounting and payments together in one offering.
Since completing the deal in October, Xero has begun integrating Melio into its US operations, embedding bill payments into the Xero platform and unifying sales and go-to-market teams.
Importantly for investors, management provided more clarity on the financial trajectory of Melio. It advised that Melio is expected to reach adjusted EBITDA breakeven on a run-rate basis in the second half of FY 2028.
Guidance update
Xero also reiterated its existing FY 2026 guidance. Total operating expenses as a percentage of revenue is expected to be around 70.5%, including Melio. This ratio is expected to be lower in the second half of FY 2026 compared to the first half.
Management also reaffirmed its FY 2028 aspirations outlined in June, as part of the Melio acquisition.
Those aspirations are that the combined business is expected to significantly accelerate US revenue growth and gives Xero the opportunity to more than double its FY 2025 group revenue in FY 2028, excluding anticipated revenue synergies.
This outcome is expected to support Xero's aspiration to deliver greater than Rule of 40 outcomes in FY 2028.
