In a recent appearance on CNBC’s “Fast Money,” prominent analyst Gene Munster provided his perspective on Microsoft’s future, focusing particularly on the company’s AI ambitions and how its products are evolving in the tech landscape.
Gene Munster is a managing partner and co-founder of Deepwater Asset Management, a firm specializing in growth equity investments, both in public and private markets. Before co-founding Deepwater, Munster spent over 20 years at Piper Jaffray (now Piper Sandler) as a senior research analyst, where he gained prominence for his work covering major technology companies such as Apple, Amazon, Google, and Facebook. He is particularly known for his accurate predictions on Apple’s success, including forecasting the impact of the iPhone and the company’s move into the living room with AppleTV.
At Deepwater, Munster focuses on investing in transformative technologies, including AI, augmented reality, and other emerging sectors. The firm manages a range of funds and assets, including a hybrid public-private fund and a frontier tech index
Munster began by addressing the nascent growth of Microsoft’s AI-based “Copilot” feature, emphasizing that while it is still early in its adoption, the growth potential is immense. According to Munster, Microsoft’s Copilot product is only scratching the surface, with an estimated 5 million users out of 450 million Office users. He stressed that this small base should be considered when evaluating the company’s recent positive comments about the product.
Munster stated that the real question is whether Microsoft’s AI-driven products will deliver enough value to justify the significant price increase for customers, from $100 to $360 annually. He believes that while this value is not entirely evident today, he expects the company to address this through future product updates, categorizing the current situation as growing pains. Munster said that these growing pains will ease over time, and consumers will become excited about these AI features as they evolve and add value.
When discussing the segmentation of Microsoft’s earnings reports, Munster commented that although Azure’s growth seems less exciting without the AI component, the focus on AI remains critical. He noted that AI is the driving force behind much of the company’s recent growth, and he expects this trend to continue over the long term. Munster believes we are still in the early stages of a three- to five-year bull market powered by AI, and he is confident that this will become bigger than the internet in terms of impact.
In response to questions about Microsoft’s valuation, Munster explained that both Microsoft and Meta are heavily exposed to AI, with almost 100% of their businesses likely to be impacted by the technology in the future. While acknowledging the strong performance of Meta compared to Microsoft, Munster pointed out that Meta trades at a lower multiple than Microsoft, making it a more attractive investment from a valuation perspective. He shared that Deepwater Asset Management currently holds Meta but not Microsoft in its portfolio, reflecting this view.
On the topic of Microsoft’s strategy of charging a subscription fee for its AI-powered assistant, Munster explained that it ultimately comes down to value. He compared it to how the price of the iPhone has increased over time as the product has delivered more value, stating that if Microsoft’s AI tools can enhance productivity significantly, consumers and enterprises will be willing to pay more. Munster supported Microsoft’s decision to charge an additional fee for its AI assistant, predicting that this strategy will pay off in the long run.
Featured Image via Pixabay
