As investors await Microsoft Corp’s (NASDAQ:MSFT) quarterly results, Gene Munster argues the company’s long-term AI strategy—not its near-term earnings—will determine whether it can maintain its market leadership.
Munster Says Microsoft’s AI Transition Matters More Than Earnings
Ahead of Microsoft’s earnings report on Wednesday, Deepwater Asset Management’s managing partner said that Wall Street is focused on the wrong metric, arguing that the software giant’s biggest challenges lie years ahead rather than in its next quarterly results.
On Tuesday, in a post on X, Munster wrote, “$MSFT’s earnings don’t matter because their battle with the bots is just beginning.”
He acknowledged the stock could still climb following the report, noting, “Yes, shares could be up 7% (the implied volatility) but that misses the bigger point.”
AI Pricing Shift and Bot Competition Could Pressure Microsoft
Munster said Microsoft faces two major headwinds over the next five years.
First, he believes the company will need to transition its core software business away from its traditional per-seat subscription model toward usage-based pricing as AI becomes more deeply embedded in enterprise software.
While he expects Azure to continue performing well under its consumption-based model, he argued that changes to Microsoft’s broader pricing strategy could introduce uncertainty and weigh on its valuation.
“New business model = uncertainty = low multiple,” he wrote.
Second, Munster warned that AI agents could fundamentally change how people interact with software. Rather than relying on applications such as Excel or Word, users may increasingly complete tasks through AI-powered bots that communicate directly with software systems.
“The utility of software is based on the abstraction layer,” Munster wrote, adding that “agents and bots remove the need for the abstraction layer because they just need bot-talk.”
Although Microsoft remains deeply embedded across enterprises, he cautioned that AI could reshape business workflows faster than many investors expect.
“‘Entrenchment’ is a relative term when it comes to the power of AI to rebuild business processes from the ground up,” Munster said.
Analysts Expect Another Microsoft Beat
Wall Street expects Microsoft to report fourth-quarter revenue of $87.61 billion and EPS of $4.23, up from $76.44 billion and $3.65 a year ago. The company has beaten revenue estimates for 13 straight quarters and earnings estimates for 15 consecutive quarters.
In the third quarter, Microsoft topped expectations with 18% year-over-year revenue growth, driven by 30% growth in Intelligent Cloud, while Productivity and Business Processes grew 17% and remained its largest revenue segment.
Price Action: Microsoft shares closed Tuesday at $393.35, up 1.09% for the day and gained another 0.42% to $395.01 in after-hours trading. The stock is down 16.83% year to date and 23.26% over the past year, according to Benzinga Pro.
According to Benzinga Edge Stock Rankings, Microsoft ranks in the 91st percentile for Quality, although the stock has lagged across the short, medium and long term.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Photo: gguy / Shutterstock
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