Microsoft Corp. is set to report quarterly earnings after the closing bell on Wednesday, but Deepwater Asset Management's Gene Munster urged investors to focus on longer-term challenges rather than quarterly results. Munster said the software giant faces headwinds from artificial intelligence and needs to restructure its business model from per-seat to usage-based pricing. He warned that Microsoft's 'battle with the bots' is just beginning, as AI agents could reduce the importance of traditional software interfaces. MSFT shares ended the regular session up about 1% and added another 0.25% in after-hours trading at the time of writing, while the stock has lost nearly 19% year-to-date.
Munster Says Microsoft Needs Business Model Restructuring
Ahead of the earnings report, Munster said in a post on X that Microsoft's earnings 'don't matter' because its 'battle with the bots is just beginning.' He said the company faces two major headwinds over the next five years that could make the stock a 'value trap,' even if the shares rise following the results.
Munster said, 'They need to restructure their business model from per-seat to usage-based.' While he expects Azure to 'crush it' over the next few years, he adds that the company's 'core business needs a new pricing model.' He said Microsoft hinted at the shift last quarter and investors are likely to hear more with the upcoming earnings report. However, Munster warned that 'new business model = uncertainty = low multiple,' suggesting the transition could weigh on the company's valuation.
Munster Warns AI Agents Could Reduce Software Interface Importance
Munster said Microsoft's 'battle with the bots' is just beginning, adding that even if the company reports impressive earnings, the 'bot boogeyman will not go away.' He added, 'The reason is the utility of software is based on the abstraction layer (the ability of humans to interface with the machine). Agents and bots remove the need for the abstraction layer because they just need bot-talk.'
While acknowledging how entrenched Microsoft's products are, citing his daily use of Excel as an example, Munster said 'entrenchment' is a relative term when AI has the potential to rebuild business processes from the ground up.
Stocktwits Retail Sentiment Improves to Neutral Ahead of Earnings
On Stocktwits, retail sentiment for MSFT improved to 'neutral' from 'bearish' over the past 24 hours, while message volume climbed to 'high' at the time of writing. Retail traders remained upbeat ahead of the company's earnings report, with one trader saying Microsoft could break above $405 after the results, and adding that the earnings release 'will be a blast.'
Another trader predicted the stock could reach $420 in after-hours trading on Wednesday and $440 by Friday. A third trader said they expect August to be a 'recovery month' for Microsoft, adding that the company could revisit its previous highs, supported by what they described as 'solid' fundamentals, a $620-billion backlog and continued innovation.
FAQ
What did Gene Munster say about Microsoft's earnings?
Gene Munster said in a post on X that Microsoft's earnings 'don't matter' because the company's 'battle with the bots is just beginning.' He urged investors to look beyond quarterly results and focus on longer-term challenges from artificial intelligence and business model changes.
Why does Munster say Microsoft needs to change its business model?
Munster said Microsoft needs to restructure its business model from per-seat to usage-based pricing. He warned that 'new business model = uncertainty = low multiple,' suggesting the transition could weigh on the company's valuation. He added that Microsoft hinted at the shift last quarter and investors are likely to hear more with the upcoming earnings report.
How did MSFT stocks perform ahead of the earnings report?
MSFT shares ended the regular session up about 1% and added another 0.25% in after-hours trading at the time of writing. The stock has lost nearly 19% year-to-date. On Stocktwits, retail sentiment improved to 'neutral' from 'bearish' over the past 24 hours, with message volume climbing to 'high.'
