Morningstar Says Software Stocks Haven't Been This Undervalued In 3 Years. These 3 Look Like Good Deals.

The article argues Microsoft, Salesforce, and Alphabet are undervalued AI beneficiaries, highlighting Microsoft’s 26.5 trailing P/E, Salesforce’s 12% revenue growth to $11.2B and Agentforce ARR above $800M, and Alphabet’s 48% Google Cloud sales growth to $17.7B. It emphasizes AI-driven traction at each company, including Microsoft’s Copilot/Claude integration, Salesforce’s 2.4 billion AI agent work units, and Alphabet’s Gemini adoption and Apple Siri partnership. Overall, the piece is bullish on large-cap software stocks despite AI disruption fears.

Analysis

The market is still pricing AI as an existential threat to incumbent software, but the more important dynamic is distribution capture: the winners are the platforms that already sit in the workflow and can monetize inference without paying full customer-acquisition costs. That favors MSFT and CRM, where AI is less about model superiority and more about embedding higher-ARPU features into existing subscription and usage contracts. The second-order effect is that AI spend may actually reinforce vendor lock-in for enterprise software, because customers will standardize on the stack that can orchestrate identity, data, and permissions across multiple models.

The underappreciated loser is not software broadly, but point solutions that depend on narrow, easily replicable workflows. If copilots and agents become table stakes inside the big suites, standalone automation vendors face compression in both pricing power and renewal quality over the next 12-24 months. On the infrastructure side, GOOGL’s cloud growth indicates AI demand is shifting from experimentation to production, which should continue to pull spend toward hyperscalers rather than smaller cloud and AI middleware names.

The consensus may be over-discounting execution risk in the near term and underestimating the long-duration monetization path. For MSFT, the key risk is model commoditization: if customers use multiple frontier models interchangeably, the company must defend its margin structure while still subsidizing AI compute. For CRM, the catalyst set is more back-end than front-end; if agent usage keeps compounding, revenue inflection can accelerate over the next several quarters even without a new product cycle. For GOOGL, the biggest tail risk is that AI search monetization initially cannibalizes legacy ad clicks faster than cloud offsets it, creating a 6-9 month earnings digestion period even if the strategic story remains intact.

Key Decisions for Investors

• Long MSFT vs short basket of smaller SaaS names that rely on workflow automation or customer support workflows; target 3-6 months. Thesis: incumbency plus distribution should absorb AI spend while weaker vendors face multiple compression.
• Add to CRM on pullbacks below 25x forward earnings, with a 6-12 month horizon. Risk/reward skews positive if Agentforce adoption keeps compounding; downside is slower enterprise budget conversion, but the stock already discounts a lot of that.
• Own GOOGL through a call spread or call overwriting structure into the next 1-2 earnings prints. The trade benefits from cloud AI monetization, but caps downside if ad cannibalization creates a transient earnings air pocket.
• Relative value: long MSFT / short GOOGL into any AI-led multiple expansion rally. MSFT has the cleaner enterprise monetization path; GOOGL has more execution risk from search transition even though its cloud momentum is strong.
• Avoid chasing AI middleware and narrow automation vendors at current levels; wait for evidence that they can defend pricing after the hyperscalers bundle equivalent features, which may take 2-4 quarters to resolve.