I think Xero Ltd (ASX: XRO) is one of the most interesting ASX growth shares to look at right now.
The share price has been hit hard and is down 50% since this time last year, with investors worrying about valuation, slowing growth, and the potential impact of artificial intelligence (AI) on accounting software.
Those concerns are worth taking seriously. But I also think the sell-off has created a much more attractive setup for long-term investors.
At lower prices, Xero starts to look less like an expensive technology stock and more like a high-quality global business going through a reset in expectations.
Image source: Getty Images
A stronger business than the share price suggests
Xero has built one of the best software platforms on the ASX, in my opinion.
Its accounting software is used by small businesses, accountants, and bookkeepers across a number of markets, including Australia, New Zealand, the UK, and North America.
That gives it a large addressable market.
The important point for me is that Xero is not just a nice-to-have tool. For many small businesses, accounting software sits at the centre of invoicing, payroll, tax, reporting, and cash flow management.
Once a business and its accountant are using the platform, moving away can be inconvenient and disruptive. That gives Xero a level of stickiness that I think is very valuable over time.
AI could be a help, not just a threat
The big fear around Xero is that AI could disrupt accounting software.
I understand why investors are asking the question. AI is changing software quickly, and it could automate parts of bookkeeping and reporting over time.
But I think there is another way to look at it.
Xero already has the customer relationships, workflow data, integrations, and trusted position inside small businesses. That gives it a strong base to add AI features of its own.
If AI makes the platform easier to use, faster, and more useful, then it could actually increase the value Xero provides to customers.
In my opinion, the winners in software will not necessarily be the companies with the flashiest AI tools. They will be the companies that can embed AI into real workflows where customers already spend time.
That is where Xero has a genuine opportunity.
Profit growth can change the conversation
For years, Xero was mostly valued on revenue growth.
That made sense while the company was investing heavily for scale. But the next stage of the story could be more about profitability.
As Xero grows larger, it should be able to benefit from operating leverage. This essetially means that revenue can rise without costs needing to grow at the same rate.
That is one of the most attractive parts of the software model.
If Xero can keep adding subscribers, lift average revenue per user, and control costs, earnings could grow much faster than revenue over the long term.
This is where I think the market may be too focused on near-term uncertainty.
Foolish takeaway
Xero is unlikely to deliver a straight-line recovery. Sentiment toward tech shares remains fragile, and AI fears may continue to weigh on the share price.
But I think the business itself still has a long runway. It has a sticky product, a global market opportunity, and the potential to use AI to strengthen its platform rather than weaken it.
For patient investors, I think this pullback could be one of the better chances to buy a high-quality ASX growth share at a much more reasonable price.
