The Xero Ltd (ASX: XRO) share price has seen a rough performance over the past year. It's down around 55% over the past 12 months, as the chart below shows.
That decline has occurred despite the company's operating revenue, net profit and cash flow continuing to rise. The decline in recent times can probably be attributed to worries about AI, but the decline last year may have been impacted by concerns about the US Melio acquisition.
Xero recently held a Melio and AI product demonstration which impressed the broker UBS and it thinks the ASX tech share has significant growth potential from here.

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UBS' optimistic view
The broker viewed the demonstration and guidance that Melio will become breakeven sometime in the second half of FY28 (on a run-rate basis) positively for Xero – this was between six to 12 months ahead of expectations.
UBS thinks the market is significantly undervaluing Melio, attributing a value of $17.80 per share on the US small and medium enterprise (SME) payables payment business.
The broker is forecasting that Xero could grow total payment volume (TPV) at a compound annual growth rate (CAGR) of 40% between FY26 and FY28, driven by a 15,000 increase per year in Melio-only users, while this could also help Xero's accounting subscriptions.
UBS noted that Xero disclosed a Melio customer tends to see a 75% rise in TPV in year one 15% in year two and 10% in year three, suggesting the ramp-up profit is "strong".
Xero also highlighted growth drivers including a rise in the gross TPV take rates and gross margins for Melio. UBS forecasts the take rate to grow from 51 basis points (0.51%) in FY25 to 82.5 basis points (0.825%) by FY29 as customers increase usage of premium payment types.
UBS also highlighted that management comments suggest a larger proportion of the US$70 million synergy target will be derived from US accounting subscriptions, which would validate the decision to acquire Melio. The broker is currently assuming Xero's accounting subscriptions will grow at 55,000 per year in the US between FY26 and FY20, plus 15,000 per annum of Melio-only subscriptions.
On the AI side of things, Xero said it has a number of competitive advantages against AI disruption, including domain expertise, decades of transaction and decision data by subscribers, and infrastructure such as bank feed relationship[s. payment rails and the app ecosystem. UBS suggested this would be difficult to replicate by AI challengers.
Xero has plans to start AI monetisation in FY27 through a mixture of bundling, add-ons and consumption. UBS surveys suggest SMEs may be willing to pay 8.5% more for AI, which the broker thinks is an opportunity for acceleration of its software as a service (SaaS) offering.
Is the Xero share price a buy?
UBS certainly thinks so, it has a buy rating on the business with a price target of $174, implying the share price could potentially double within the next year.
The current projection is that net profit could soar to $928 million, which could be a big driver for the Xero share price.