Enterprise Software Selloff: Buying Opportunity or Value Trap?

Your Microsoft shares just lost 17% in three months. Your Salesforce position? Down nearly 20%. Welcome to the enterprise software apocalypse—or what Morgan Stanley calls "attractive entry points."

The investment bank issued a contrarian call Sunday, telling clients to buy the dip in two of the market's most beaten-down software giants. But with AI fears gripping the sector, is this wisdom or wishful thinking?

The AI Double Threat

Investors are spooked by two nightmare scenarios. First, AI models like Anthropic are getting so sophisticated at coding that businesses might just build their own software instead of paying licensing fees. Why buy when you can create?

Second—and perhaps more immediately threatening—AI tools within existing platforms could work too well. Microsoft's Co-pilot and Salesforce's Agentforce promise to boost worker efficiency so dramatically that companies could slash headcount and need fewer per-seat licenses.

It's a cruel irony: the better these AI tools perform, the less money their creators might make from traditional subscription models.

Morgan Stanley's Contrarian Bet

The investment bank isn't buying the doom narrative. If AI truly delivers massive efficiency gains, that proves the software's value, analysts argued. Companies have adapted pricing models before—remember when software moved from one-time purchases to subscriptions?

"Pricing models have changed multiple times in the past," the analysts wrote. "This is not an existential risk, but it does represent a potential execution risk in the form of business model transitions."

On the coding threat, they point to a telling precedent: open-source software has existed for 20 years, yet third-party software has "flourished in that time." Developer productivity has been improving for decades, but the software industry kept growing.

The Market Remains Skeptical

Not everyone's convinced. Melius Research downgraded Microsoft to hold-equivalent, arguing CEO Satya Nadella has lost control of the AI narrative. The firm questioned Microsoft's focus on Co-pilot, which might need to become free rather than paid to gain adoption.

Jim Cramer offered a grimmer perspective: "Wall Street's paying less and less for their earnings... because that's what you do when you're worried about the future." He warned that shrinking price-to-earnings multiples can fall further than investors expect.

The numbers tell the story of investor anxiety. Despite Microsoft's Azure cloud growth technically beating estimates, the 66% year-over-year increase in capital expenditures left investors wanting more justification for the massive AI spending spree.

The Execution Challenge

Both companies face a delicate balancing act. They must prove their AI investments generate returns while transitioning business models that have worked for decades. Microsoft remains the world's second-largest cloud provider with dominant Office suites. Salesforce still controls significant CRM market share.

But past success doesn't guarantee future relevance. The question isn't whether these companies will survive AI disruption—it's whether they'll thrive or merely endure.