AI eats software: Top investor dumps Microsoft shares

The British hedge fund TCI had been invested in Microsoft since 2017 and benefited from strong price gains during this period. Most recently, the Microsoft stake was worth around 8 billion dollars. Now, the hedge fund led by TCI founder Chris Hohn has reduced its Microsoft stake in its portfolio from 10 to 1 percent, according to an investor letter seen by the Financial Times.

"We reduced our investment in Microsoft because the rapid progress in AI introduces uncertainty over Microsoft’s competitive position in the future," Hohn writes, according to the Financial Times, in the investor letter. "We are primarily concerned about Microsoft’s Office productivity software franchise, where AI could change established workflows and lead to the emergence of new productivity platforms." At the same time, TCI also sees risks in its Azure cloud business.

The business newspaper points out that TCI has achieved significant profits with Microsoft over the past nine years: the share price rose by almost 400 percent during this period. Nevertheless, the hedge fund is now apparently betting on a different horse.

The investor letter reveals that TCI increased its stake in Google's parent company Alphabet in its portfolio from 3 to 5 percent in the quarter. This makes Alphabet the fund's largest tech holding. TCI founder Chris Hohn is known for making few, but large bets: the fund currently invests in around 15 companies and generated a profit of almost 19 billion dollars last year.

Software stocks under AI pressure

The decision reflects growing doubts about whether the software industry's existing business models will remain viable in the age of AI. The concern is that AI agents could undermine traditional software models: if AI takes over tasks for which companies have previously paid user licenses, the existing SaaS model with user-based billing comes under pressure. This scenario has been discussed on Wall Street for months under the term "AI eats Software".

The extent of these doubts is also evident in the stock markets. Microsoft is currently trading around 14 percent below its year-end 2025 level and about a quarter below its 52-week high. The performance of other software stocks is even more pronounced: Oracle, Adobe, and Salesforce are partly close to 40 percent below their highs. The former stock market darlings of the SaaS era are thus being valued much more skeptically. This shows how seriously investors are taking the concern that AI could devalue established software models.

(nie)