The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Sebastian Pellejero

NEW YORK, May 21 (Reuters Breakingviews) - It's unusual for two great investors to look at the same company and reach diverging conclusions. Over the past four months, Bill Ackman and Christopher Hohn have traded Microsoft MSFT.O in opposite directions. The former is betting on the $3 trillion software giant. The latter has slashed his stake, fearing what looks like a competitive moat is actually a target for artificial intelligence.

Ackman's Pershing Square Capital Management disclosed a $2.3 billion holding in Microsoft on May 15, while exiting Google parent Alphabet GOOGL.O entirely. Hohn's TCI Fund Management did the opposite, shrinking Microsoft from 10% of its portfolio to 1% between December and March, according to an investor letter reported by the Financial Times. That's a position the London-based investor has held since 2017. Symmetrically, Hohn rotated into Alphabet, now his largest technology holding.

The diverging trades sum up a sharp disagreement between money managers about whether companies that won the last era of software are best placed to win in AI. Ackman argues that Microsoft's dominance in enterprise software gives it an unassailable advantage as AI technology is deployed, while $190 billion in committed capital expenditure this year shows the company run by Satya Nadella has the resources to build the infrastructure AI will run on.

Hohn's rebuttal is that Microsoft's advantage matters less when work fundamentally changes. As AI-powered agents move fluidly across operations, switching costs collapse and value migrates to their orchestrators and the data powering them. Google's dominance of online search, chipmaking prowess and deep research capabilities don't just resist replication, but will compound in value as AI scales.

The London-based investor is not alone. Investors Third Point and George Soros' family office have reduced or exited their Microsoft positions in recent months, as has the foundation established by Bill Gates, the software group's founder. Its shares are down 11% so far this year, against an 8% gain in the S&P 500.

The implications go beyond Microsoft. If Hohn is right, the logic of investing in software — that stickiness of products with customers compounds into permanence — no longer holds. An index tracking the value of publicly traded software companies as a multiple of their median annual recurring revenue has fallen from a 2021 peak of 16.9 to 4.8 at the end of April, the lowest level in over a decade, as financial markets price in the existential threat.

Technological transitions have a habit of humbling market giants. When the personal computer era began, the average tenure for members of the S&P 500 Index .SPX was about 33 years. Today, it is around 15 years, according to Torsten Slok, chief economist at Apollo Global Management. Hohn's bet is that AI will fuel the next big corporate reshuffle. For investors, getting ahead of a sea change is where the greatest returns lie.

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CONTEXT NEWS

Bill Ackman posted on X on May 15 that his hedge fund, Pershing Square Capital Management, has taken a new stake in Microsoft, betting that the software giant’s investments in artificial intelligence aren’t reflected in its share price.

Christopher Hohn’s hedge fund TCI sold almost all of its $8 billion stake in Microsoft, according to an investor letter reported by the Financial Times on May 8. One of the world’s best performing hedge funds, TCI held a large stake in the tech giant for much of the past decade, but cut its holding from 10% to 1% by the end of March.