JPMorgan: AI Disruption Fears Overstated for Software Sector
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Feb 13 2026
0mins
Should l Buy MSFT?
Source: Benzinga
- Market Rebound Expectations: JPMorgan believes that while the market's outlook on AI disruption in the software sector is overly pessimistic, certain software companies are demonstrating greater resilience, potentially providing rebound opportunities for investors, especially given the current overly bearish sentiment.
- Extreme Price Volatility: Analysts point out that the extreme price action in software stocks has led to unrealistic expectations regarding AI disruption, which may prompt a rotation back into higher-quality companies, thereby improving portfolio performance.
- AI Profitability Gains: Companies in the S&P 500 that have adopted AI have seen net margins expand by approximately 2 to 3 percentage points more than their peers, indicating that AI technology is already delivering productivity gains and reflecting that corporate adoption is enhancing profitability.
- ETF Performance Decline: The State Street SPDR S&P Software & Services ETF (NYSE:XSW) is down 20.58% year-to-date, illustrating the overall pessimistic sentiment towards the software sector, despite some companies potentially benefiting from AI infrastructure demand.
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Analyst Views on MSFT
Wall Street analysts forecast MSFT stock price to rise
34 Analyst Rating
32 Buy
2 Hold
0 Sell
Strong Buy
Current: 358.960
Low
500.00
Averages
631.36
High
678.00
Current: 358.960
Low
500.00
Averages
631.36
High
678.00
About MSFT
Microsoft Corporation is a technology company that develops and supports software, services, devices, and solutions. Its Productivity and Business Processes segment consists of products and services in its portfolio of productivity, communication, and information services, spanning a variety of devices and platforms. It comprises Microsoft 365 Commercial products and cloud services; Microsoft 365 Consumer products and cloud services; LinkedIn, and Dynamics products and cloud services. The Intelligent Cloud segment consists of its public, private, and hybrid server products and cloud services. It comprises server products and cloud services, including Azure, and enterprise and partner services, including Enterprise Support Services. Its More Personal Computing segment primarily comprises Windows and Devices, including Windows OEM licensing; Gaming, including Xbox hardware and Xbox content; Search and news advertising, comprising Bing and Copilot, Microsoft News, and Microsoft Edge.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Stable Revenue Structure: With 80% of revenue coming from services and other businesses, Microsoft's service sales rose by 21% despite only 1% growth in product sales, indicating a stable income source even during economic downturns, which boosts investor confidence.
- Attractive Valuation: Trading at a price-to-earnings ratio of only 22, in line with the S&P 500 average, and generating over $119 billion in profit over the past 12 months, Microsoft's stock presents an appealing option for risk-averse investors.
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- Azure Capacity Reallocation: Microsoft reported a year-over-year growth rate of 38% instead of the expected 40% due to internal capacity shifts, raising concerns that these dynamics may reflect genuine supply constraints, potentially affecting market expectations for future growth.
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- Dependency Risks: Approximately 45% of Microsoft Azure's revenue backlog relies on OpenAI, raising investor doubts about its future profitability, especially amid increasing AI spending.
- Valuation Decline: With a current P/E ratio of 23, down from last year's peak of 39, analysts project a 16% annual earnings growth over the next three to five years, suggesting that the current valuation may have overshot to the downside.
- Competitive Pressure: While Microsoft holds a significant position in the enterprise market, the potential for AI to displace some of its highly profitable legacy software products poses a risk, necessitating close monitoring of its business transformation under a multimodal strategy.
See More
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- Reasons for Decline: Microsoft's stock has fallen 33% since reaching an all-time high in October 2025, primarily due to market concerns over increasing spending on AI and data centers, as well as worries about its dependence on OpenAI, which have led investors to question the company's outlook.
- Profitability Risks: Approximately 45% of Microsoft Azure's revenue comes from OpenAI, raising concerns about its profitability, especially with the potential for AI to displace some of Microsoft's highly profitable legacy software products, prompting a reevaluation of its valuation by the market.
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See More
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- Diverse Clientele: This order volume comes from major hyperscalers, cloud providers, and sovereign governments worldwide, indicating strong demand for Nvidia's GPUs and data center equipment, with deliveries anticipated over the next 12 to 24 months, thereby mitigating revenue risk for the company.
- High Margin Assurance: With these orders locked in at premium pricing, Nvidia's gross margin is expected to remain robust at 71.07%, ensuring not only short-term profitability but also laying a solid foundation for long-term growth.
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