Xero Ltd (ASX: XRO) shares are taking a tumble today.
Shares in the S&P/ASX 200 Index (ASX: XJO) business and accounting software provider closed yesterday trading for $64.45. During the Friday lunch hour, shares are changing hands for $62.63 apiece, down 2.8%.
For some context, the ASX 200 is down 0.5% while the S&P/ASX 200 Information Technology Index (ASX: XIJ) is down 2.5%.
With today's intraday losses factored in, Xero shares are now down 65% since this time last year. And it sees the ASX 200 tech stock trading at its lowest levels since June 2022.
We'll look at whether that may present a long-term buying opportunity below.
But first…
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Why have Xero shares been falling?
While Xero shares have taken a particularly hard hit, it's worth noting that the ASX 200 Information and Tech Index has also crashed by 44.4% over the past year.
A lot of that broader selling pressure was driven by investor concerns over the potential for artificial intelligence to replace the services that Software as a Service (SaaS) companies like Xero provide.
You may have heard this referred to as the 'SaaSpocalypse'.
Tech stocks have also faced headwinds amid rising interest rates, which generally drag on growth-oriented shares such as Xero. That's because these stocks are usually priced with higher future earnings in mind. And as interest rates go up, so too does the present cost of investing in those future earnings.
Why is the ASX 200 tech stock falling again today?
Today's 2.8% decline in Xero shares follows the 2.2% overnight decline on the tech-heavy S&P 500 Index (SP: .INX).
That selling looks to be spurred on two fronts.
First, the escalating attacks in the Middle East, which see the Brent crude oil price above US$100 per barrel again today. This could pressure central banks to raise interest rates to keep a lid on the ensuing inflation.
And second, investors look to be getting jittery about the massive cash spend that the big tech companies are pouring into AI.
Those concerns pressured all of the 'Magnificent 7' US tech giants in Thursday's trade.
Commenting on the tech stock sell-down, Jason Lemire, chief investment officer at Bold Wealth Partners, said (quoted by Bloomberg):
These companies used to have the healthiest balance sheets in the history of corporate America, now they're asset heavy and there's a question about the ROI [return on investment]. That's a big change in how investors need to view them, and that's before you get to the lack of transparency in terms of their exact debt obligations over the coming years.
Are Xero shares now trading for a long-term bargain?
Getting back to our headline question, most analysts believe that at $62.62, Xero shares present a good long-term buying opportunity.
Following the company's acquisition of US bill pay platform Melio earlier in the year, Xero reported a 31% year-on-year increase in operating revenue to $2.75 billion. Adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) of $757.4 million were up 18%.
As at 21 July, CommSec consensus analysis showed six brokers tipping Xero as a strong buy, two as a moderate buy, three as a hold, and one as a moderate sell.
Although Morgans Financial downgraded Xero to an accumulate rating from a buy on 13 July, the broker's price target of $85 a share suggests a potential upside of more than 25% from today's multi-year lows.
