Why Intuit Stock (INTU) is Torn Between AI Victim and AI Victor Status

Business Insider

2 days ago

Intuit (INTU) is engaged in a battle on two fronts. Macroeconomic headwinds continue to challenge its small business customer base. At the same time, generative AI—an area where Intuit is investing heavily—has also been framed by some as a potential existential threat to its services. Despite these pressures, the company's financial position remains exceptionally strong. Recent business trends suggest that Intuit is more likely to emerge as a beneficiary of the AI revolution than as a casualty, supporting a Bullish outlook even as competitive forces intensify.
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INTU Fires on All Cylinders Amid Uncertainty
Intuit is delivering strong performance across its operations. In the third quarter of fiscal 2025, revenue grew 15.1% year-over-year to $7.75 billion. This momentum prompted management to raise full-year fiscal 2025 guidance, now expecting approximately 15% revenue growth —up from the prior 12–13% range. For a company of Intuit's scale, sustaining this level of growth is a notable achievement.
The performance is all the more impressive when set against the backdrop of macroeconomic uncertainty, including higher interest rates and inflation. Considering that the majority of Intuit's customers are small and medium-sized businesses (SMBs), this signals that Intuit's offerings are 'mission-critical.' In other words, when the going gets tough for SMBs, they aren't cutting back on Intuit products.
Avoiding Death by a Thousand Cuts
Despite robust financial results, Intuit's stock has underperformed the broader tech software sector ETF (IGV) over the past year. This may reflect investor caution regarding the durability of its performance amid potential AI-driven disruption. Rather than competing with Intuit's platform in its entirety—a near-impossible task—several AI-native startups are focusing on replicating specific workflows within its ecosystem. While no single player poses an existential threat, the cumulative effect of highly specialized competitors could still be significant.
In this vein, several specialized AI-native startups are aiming to carve out a niche by mimicking specific workflows within Intuit's vast ecosystem. While this may not seem as dangerous as a single, monolithic competitor, 'death by a thousand cuts' is still a nasty way to go.
These emerging tools excel at solving targeted problems. For example, Digits offers real-time, automated bookkeeping with interactive dashboards and an 'Autonomous General Ledger.' Filed streamlines the entire tax return lifecycle. Rillet focuses on automating accounting for complex revenue models, directly addressing Intuit's upmarket expansion through QuickBooks Advanced and the Intuit Enterprise Suite. Other niche solutions are targeting additional segments of Intuit's offerings.
The Ongoing Threat of Government Intervention
The U.S. government-sponsored free tax filing application, Direct File—made permanent during the 2024 tax season—remains a significant competitive threat to Intuit. Early results from the IRS pilot indicate strong adoption and user satisfaction, with over 140,000 accepted returns filed across 12 pilot states and 90% of respondents rating their experience as 'Excellent' or 'Above Average.'
Following lobbying efforts by Intuit and others, who argued the program represented 'government overreach' and fiscal imprudence, the initiative was discontinued under the Trump administration. However, a future administration could choose to reinstate it. The broader implication is clear: Intuit's entry-level TurboTax product is vulnerable to commoditization if a widely accessible, government-backed alternative gains traction.
Intuit's Counter-Offensive: The Data and AI Advantage
There are also reasons for optimism. Intuit is actively executing a counter-strategy built around its transformation into an 'AI-driven expert platform.' With a vast trove of proprietary customer and financial data—on a scale AI-focused startups cannot match—Intuit holds a significant competitive advantage. Its products benefit from high user stickiness, in part because customers can access years of records seamlessly within Intuit's cloud ecosystem, eliminating the need to manually retrieve historical documents.
A key focus is 'agentic AI,' in which a network of interconnected AI agents can autonomously manage entire workflows from start to finish. This approach has the potential to significantly enhance productivity, deepen customer engagement, and further entrench Intuit's competitive position.
INTU's Premium Valuation Goes on Trial
Intuit's valuation already reflects high expectations. I ts price-to-earnings (P/E) ratio, near 60, represents roughly a 100% premium to the Information Technology sector average. If the company successfully launches and monetizes its AI agent ecosystem while continuing to expand in the mid-market through the Intuit Enterprise Suite, this premium could be warranted.
Conversely, if competitive pressures from AI-native startups or government-backed solutions intensify, the stock's elevated valuation could face significant compression.
Is INTU a Good Stock to Buy?
On Wall Street, INTU sports a 'Strong Buy' consensus rating based on 22 Buy, one Hold, and zero Sell ratings in the past three months. Its average price target of $845.45 implies an upside potential of 18.79% over the next twelve months.
Last month, Morgan Stanley analyst Keith Weiss increased his price target on INTU from $785 to $900, citing Intuit's progress 'into the $6 billion mid-market Enterprise Resource Planning and accounting software market.' He believes that Intuit is 'best-positioned,' despite competition from companies like Sage and Xero.
While market attention has primarily centered on risks to Intuit's consumer tax segment (TurboTax) and macroeconomic pressures on small businesses, the company's mid-market expansion may prove to be a more reliable driver of long-term growth. These complex, higher-value products command premium pricing and exhibit strong customer retention, making them less vulnerable to churn.
Intuit Turns AI Threat Into Opportunity Amid Lingering Risk
While Intuit faces competitive pressures from AI, the evidence indicates it is an active and aggressive participant in the AI arms race. Its ability to absorb AI-driven disruption and integrate the technology into its platform is a notable strength. That said, risks remain—particularly from well-funded startups and the potential reemergence of government-backed tax solutions. However, absent clear indications that these factors are materially impacting performance, the outlook remains aligned with Wall Street's bullish stance on INTU.