Morgan Stanley Sees Opportunity in Microsoft's Sell-Off, But Questions Remain on Salesforce

A sharp sell-off in enterprise software stocks showed signs of easing this week, prompting analysts at Morgan Stanley to identify potential buying opportunities. In a note to clients, the firm highlighted Microsoft and Salesforce as established names now trading at what they call "attractive entry points." Both stocks have faced significant pressure, with shares down roughly 17% and 20% over the last three months, respectively, largely on investor anxiety about artificial intelligence.

The core fear is twofold: that AI could enable companies to build their own software, bypassing vendors, and that AI tools within platforms like Microsoft's Co-pilot could reduce the need for per-user licenses by making workers vastly more efficient. Morgan Stanley downplayed the licensing concern, arguing that if AI delivers that much value, it validates the software itself, and pricing models can adapt. "This is not an existential risk," the note stated, "but it does represent a potential execution risk."

On the threat of AI replacing third-party software, the analysts noted that while developer productivity is accelerating, it has been improving for decades. The long-standing availability of open-source software, they pointed out, did not prevent the commercial software market from flourishing.

While the broader analysis presents both companies as strong franchises, a closer look reveals diverging prospects. Microsoft, despite recent investor confusion over its capital expenditure plans and Azure growth, retains a dominant position with its cloud division and enterprise suites. The company's leadership is trusted to navigate the transition.

Salesforce, however, faces deeper skepticism. Its challenges predate the recent market rout, and there are concerns that its declining price-to-earnings multiple reflects a fundamental worry about its future, not just a temporary discount. As one commentator noted, when the market pays less and less for stable earnings, it signals a lack of confidence in what lies ahead. For now, Microsoft appears the clearer candidate for investors willing to weather near-term volatility.

Source: CNBC