Many software stocks have been struggling this year due to growing concerns that artificial intelligence (AI) will take over many jobs, put people out of work, and reduce demand for software. One stock that's been doing particularly poorly this year is Microsoft (MSFT 1.15%), which, entering the week, was down 13% -- and that's with it rallying in recent weeks.
The doom and gloom around software may be overblown, according to one Microsoft executive, who doesn't believe that it'll cause a significant decline in revenue. In fact, it may even lead to growth opportunities.
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Why the rise of agentic AI may unlock growth opportunities for software companies
Rajesh Jha is the executive vice president of Microsoft's Experiences + Devices group and has been with the tech company for 35 years. And Jha isn't worried about what lies ahead as more AI agents take on roles with companies. The trend may not hurt companies like Microsoft that sell licenses, simply because more agents may equal more demand. "All of those embodied agents are seat opportunities."
Even if there are job cuts due to AI, Jha envisions a scenario where there may be many agents assisting a worker in a position. They would need their own credentials to login, just like a human user would. And so in Jha's view, the demand may potentially grow, because if a person's job is replaced, it may require multiple AI agents that would still need access to software.
However, depending on how a job is structured, it may not necessarily be the case that all agents need to access the same software. But Jha's point is that whether human or AI agent, there will likely remain a need to access software, and with many providers selling access on a per-seat basis, revenue may grow for those types of companies.
NASDAQ: MSFT
Key Data Points
Has the market overreacted?
This year, the iShares Expanded Tech-Software Sector ETF has declined by close to 20%, as investors have turned bearish on software stocks as a whole. But Jha points out an important consideration for investors -- per-seat licenses may remain in demand even if the number of jobs declines.
The pessimism around software stocks has likely been exaggerated, with the decline in Microsoft's stock being a prime example of that. The good news is that for investors looking at the big picture and willing to remain patient, there can be some great buying opportunities today. Microsoft's stock has become a much more compelling buy this year, given its pullback in price, and it can be a great one to load up on right now. It's trading at 26 times its trailing earnings, which is down from a multiple of nearly 40 last year.
