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(*I don’t necessarily agree with their assessment on MSFT, which i own. But I am sharing their latest fair value assessment of sw companies.)*
Downgrading Ratings for Six Wide-Moat Software Companies on AI Concerns
[ https://www.morningstar.com/stocks/downgrading-ratings-six-wide-moat-companies-based-ai-concerns ](https://www.morningstar.com/stocks/downgrading-ratings-six-wide-moat-companies-based-ai-concerns)
We think it is hard to recommend any software stock in this environment due to the extreme uncertainty.
Dan Romanoff, CPA
Mar 5, 2026
The pace of change within the software industry has accelerated in recent months, leading to heightened uncertainty and prompting us to reassess moat ratings.
**Why it matters:** The capabilities of large language models are rapidly advancing and seem primed to cause at least some disruption within the industry, or at worst drive massive dislocation for many software firms.
After an in-depth review of the software and services firms covered throughout Morningstar, we are downgrading moat ratings, reducing fair value estimates, and increasing uncertainty ratings for our immediate coverage of a variety of companies.
**The bottom line**: We downgrade our moat ratings from wide to narrow for these companies: Adobe, Descartes, Manhattan Associates, Salesforce, ServiceNow, and Shopify. This is based on lower confidence in the long-term return profile that software companies may generate in the AI era.
\- We lower our fair value estimates as follows: Adobe to $380 per share from $560, Descartes to $90 from $96, Manhattan Associates to $170 from $215, Salesforce to $280 from $300, ServiceNow to $165 from $200, and Shopify to $120 from $160.
\- We raise our Uncertainty Ratings as follows: Blackbaud to Very High from Medium, Descartes to High from Medium, Guidewire to High from Medium, HubSpot to Very High from High, Atlassian to Very High from High, Tyler to High from Medium, and Zoom to High from Medium.
**Big picture:** We have seen multiple “software is dead” episodes over the last 26 years and do not share the view that software moats have evaporated overnight. We therefore conclude there will be winners and losers in the AI era, and that patient investors can find value within the carnage.
Our top pick is wide-moat Microsoft, which has a fair value estimate of $600 per share, as we think the firm should thrive regardless of AI. However, we think it is hard to recommend any software stock in this environment due to the extreme uncertainty.
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**edited:**
*1. You may disagree with Morningstar but their wide moat index has been beaten the SPX for the last 3 years. I don’t think it is a coincidence. (see comments)*