Xero's (ASX:XRO) US business is shifting primarily toward payments, which generates less recurring revenue than software-as-a-service, Jefferies said in a Tuesday note.

The analysts said they agreed with the market perception that Xero is prone to artificial intelligence disruption in the long term, and the proliferation of AI-native services could make it more difficult to win new customers.

The firm expects Xero's Melio unit to achieve break-even earnings before interest, taxes, depreciation, and amortization on a run-rate basis in the second half of fiscal year 2028.

The investment firm has a hold rating on Xero and lowered the price target to AU$100.70 per share, down from AU$135.50 per share.