Microsoft Corp. (NASDAQ:MSFT) shares are on track for their best trading day in more than three months after the technology giant posted stronger-than-expected fiscal first-quarter earnings, prompting Deepwater Asset Management’s Gene Munster to highlight accelerating software growth despite mounting concerns that artificial intelligence could disrupt the industry.
Software Growth Surprises Even A Skeptic
Microsoft shares rose approximately 4% in overnight trading Wednesday following the earnings beat. If those gains hold during Thursday’s regular trading session, the stock would be on track for its best single-day performance in more than three months.
"Software is alive and well, at least for now," Munster wrote in an X post on Wednesday.
Munster highlighted 17% year-over-year growth in Microsoft 365 commercial cloud revenue for September, compared with the 14% figure he cited for June. Microsoft’s reported figure for the June quarter was 16%.
"I’ve been waiting for software growth to crack. It’s actually getting better," Munster noted.
In a subsequent post, he praised Microsoft’s execution, stating, "I give them credit for accelerating software growth in the face of knowledge worker decline." His comments follow concerns that AI agents could reduce demand for conventional software even as businesses increase automation spending.
Microsoft Beats Earnings And Cloud Expectations
Microsoft reported quarterly revenue of $92.3 billion, up 19%, and adjusted earnings of $4.89 per share, beating Wall Street expectations. Operating income climbed 21% to $45.9 billion, while Microsoft Cloud revenue rose 30% to $63.9 billion.
Azure revenue surged 48% to $33.17 billion, exceeding analysts’ estimates. Microsoft’s commercial backlog reached $677 billion, up 73%. Free cash flow hit $18.6 billion, approximately $10 billion above expectations, despite $45.2 billion in quarterly capital spending. Shares gained roughly 3% after hours.
The company also forecast stronger Azure growth of 49%-50% for the December quarter, reinforcing its confidence in cloud demand.
Munster Still Expects AI Software Headwinds
Munster nevertheless cautioned that current momentum does not eliminate longer-term disruption. "Long term, I still believe the full impact of AI on their software business will be a headwind," he wrote. "As for timing, I think we see something a year from now."
His warning comes as Microsoft expands Copilot and agent offerings alongside infrastructure investments. CEO Satya Nadella said Microsoft was delivering "greater capability, choice, control, and cost efficiency" across its portfolio.
Despite growing investor optimism, Munster maintains that AI could challenge Microsoft’s software business by late 2027, even as the company’s latest results demonstrate resilient demand.
Price Action: Microsoft shares were up more than 4% at $551.62 in pre-market trading on Thursday, according to Benzinga Pro data.
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