Gene Munster, managing partner at Deepwater Asset Management, believes companies facing AI disruption must aggressively respond or risk losing their market positions.
In an interview with CNBC, Munster compared the current market tension to Google’s (GOOGL), (GOOG) successful defense of its search business last year, arguing that software firms (IGPT), (XSW), (IGV) in particular need a similar “Google moment” to prove their continued relevance.
The market has seen meaningful pullbacks across multiple industries this week, driven in part by a broader “risk off” sentiment among investors.
Munster noted that investors have been actively seeking reasons to sell, particularly targeting capital-light software businesses that may be vulnerable to AI disruption. However, he emphasized this is not merely about market jitters but reflects a genuine shift in how the market perceives AI’s threat to traditional business models.
Munster pointed to remarkable evidence of AI’s real-world impact on productivity, highlighting that Spotify’s (SPOT) CEO revealed the company’s best coders “have not written code since December.”
This development is significant because Spotify (SPOT) is not an AI-first company, yet its workforce is already transforming.
“The market is having a better sense that ultimately that this disruption is on the horizon,” Munster said.
The long-term value of software companies (IGPT), (XSW), (IGV) hinges on a fundamental question, according to Munster: whether agents will eventually outnumber humans in the workforce.
If bots replace human workers at scale, there will simply be less demand for traditional software seats, threatening the revenue models of giants like Salesforce (CRM) and Microsoft (MSFT). Munster expressed doubt that a company like Salesforce (CRM) could sustain a premium valuation “when you have that lingering out there.”
Munster shared that Deepwater is already experiencing this shift firsthand, using AI tools to build spreadsheets that bypass the need for traditional Microsoft licenses.
“Unless the software companies have a Google moment where they basically punch back like Google did with their search number back in the March,” he warned, “I think the case will still be open that bots are going to take seats lower.”
Without radical adjustments to hiring and infrastructure, Munster finds it difficult to imagine earnings continuing to grow for disrupted software firms. Until these companies demonstrate innovation that protects their core business or deliver exceptionally strong earnings showing no signs of disruption, their stock multiples will likely remain under pressure.