Investment bank Jefferies is pushing back on the belief that "AI is eating software." Some software companies are vulnerable to the artificial intelligence megatrend but others will evolve and thrive, the firm says. Microsoft stock is likely one such winner, it said.
"We believe AI is a transformational wave, not a destructive hurricane," Jefferies analyst Brent Thill said in a report Sunday titled "AI Is Not Eating Software."
The recent underperformance of software stocks vs. broader tech sector has been driven by AI fears and negative investor sentiment, Thill said. It has knocked down some software stocks that should be able to ride the AI wave, he said.
Thill said he favors six software stocks in the current market. They include Microsoft stock, Intuit, Snowflake, Monday.com, Unity Software and Roper Technologies.
"Software AI fears are overblown," Thill said. "The growing fear that AI will fundamentally change how enterprise software is traditionally built and used has weighed heavily on investor sentiment."
Microsoft Stock Is On Three IBD Lists
Last week, Melius Research analyst Ben Reitzes downgraded Adobe stock to sell from hold on the thinking that its business is being disrupted by AI technology and emerging competition. Other software stocks being negatively impacted include Salesforce and Workday, Reitzes said.
However, Reitzes named Microsoft stock as a winner in AI because of its data center infrastructure investments.
Thill concurs. Microsoft will be able to monetize AI thanks to its "best-in-class enterprise platform," he said.
"Infrastructure and security names have remained resilient amid broader software sector weakness, supported by increasing AI-driven demand and cloud workloads," Thill said. "While AI is driving a real change, we believe the pace of disruption will be evolutionary, not existential."
Microsoft stock is on three IBD lists: Big Cap 20, Long-Term Leaders and Tech Leaders.
On the stock market today, Microsoft stock slid 0.6% to close at 517.10.
Follow Patrick Seitz on X at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
