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$MSFT ’s earnings don’t matter because their battle with the bots is just beginning. Yes, shares could be up 7% (the implied volatility) but that misses the bigger point: Microsoft has two major headwinds over the next 5 years, which means it’s likely going to be a value trap. 1) They need to restructure their business model from per-seat to usage-based. Azure will crush it for the next few years, but the core business needs a new pricing model. They hinted at that last quarter and we’ll hear more tomorrow night. New business model = uncertainty = low multiple. 2) The battle of the bots. Even if Microsoft has impressive results the bot boogeyman will not go away. The reason is the utility of software is based on the abstraction layer (the ability of humans to interface with the machine). Agents and bots remove the need for the abstraction layer because they just need bot-talk. I understand how entrenched Microsoft’s products are as evidenced by my daily use of Excel. Unfortunately for Microsoft, “entrenchment” is a relative term when it comes to the power of AI to rebuild business processes from the ground up.
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