What to make of Xero's 12% recovery last week?

Recovery on the way or time to sell?

Xero Ltd (ASX: XRO) shares are under the microscope once again after the ASX technology stock rose 12% last week. 

It's been a volatile 2026 for the company, which has suffered heavy losses at the hands of AI fears.

Xero shares are down significantly from 12-month highs, however last week was overwhelmingly positive amidst a broader market fall. 

Australia's benchmark index, the S&P/ASX 200 Index (ASX: XJO), fell nearly 3%. 

So is this the beginning of a larger recovery for Xero?

Here's what experts are saying. 

Nervous customer in discussions at a bank.

Image source: Getty Images

Xero shares recover 

Xero has been one of the many ASX tech companies suffering from negative sentiment. 

Technology shares have come under fire as fears have risen regarding AI integration/automation. 

Essentially, many ASX tech firms are software-as-a-service (SaaS) companies (e.g., accounting, logistics, analytics platforms).

Investors worry that new AI tools could perform similar tasks faster and cheaper, reducing demand for traditional software subscriptions.

This puts Xero's core service directly in the firing line, which is accounting software made for small businesses and sole traders.

The share price swung around heavily last week, ultimately finishing the week 12% higher. 

Despite the recovery, its share price is still down almost 50% in the last 12 months. 

What are experts saying?

Xero chief executive Sukhinder Singh Cassidy said (via AFR) the company's core products cannot easily be replicated by artificial intelligence tools. 

In an investor briefing last week, she said: 

We are deeply focused on capturing the global AI and US accounting plus payments TAM. Xero is well positioned to shepherd SMBs into the AI era and take advantage of this technology.

However, according to The Bull, analyst sentiment has turned decidedly cautious. 

Jefferies downgraded Xero from 'Buy' to 'Hold,' expressing concerns that the company may prioritise aggressive growth in the competitive U.S. market at the expense of near-term profitability. 

RBC Capital went further, cutting its rating to 'Sector Perform' from 'Outperform' and slashing the price target from A$230 to A$187.

While this suggests negative sentiment, it's worth noting this price target still indicates plenty of upside from last week's closing price of $87.63. 

Elsewhere, Fairmont Equities listed it as a sell. 

Last month, Blackwattle mid-cap portfolio managers Tim Riordan and Michael Teran weighed in on the future for Xero shares. 

They reinforced the short-term outlook as positive, and Xero remains a market-leading, global accounting SaaS software provider with strong financial metrics.

However, the recent AI agent updates have created significant disruption implications, and it has become difficult to have confidence in the terminal value of some legacy technology companies.

As such we have focused the portfolio on those which we assess to have the strongest network effects.

Foolish takeaway 

The early period of this rotation out of ASX technology shares led to plenty of "don't panic" messaging from experts. 

However it seems the tide is turning to a cautious outlook for Xero. 

The core product is still generating healthy subscriptions, but the long-term outlook has certainly become more foggy. 

Motley Fool contributor Aaron Bell has positions in Xero. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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