Intuit: We Lower Moat Rating, Cut Fair Value Estimate on Reduced Certainty Around AI

Key Morningstar Metrics for Intuit

• Fair Value Estimate
  : $495
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : High

Moat Rating Update

We have lowered our economic moat rating for Intuit INTU to narrow from wide, following a review of the potential disruption to the global technology sector from artificial intelligence.

Why it matters: To issue a wide moat rating, we need to believe the company can almost certainly deliver a return on invested capital above its cost of capital over the next decade. With AI’s capabilities quickly expanding, we are no longer confident about the certainty behind Intuit’s wide moat.

• Part of Intuit’s switching costs stems from users’ familiarity with Intuit products. This competitive advantage can become a prime target for AI disruption, as large language models now enable an innovative experience that lets users complete tasks in natural language.
• That said, Intuit still benefits from switching costs that expose users to potential risks and extra work when they migrate business or tax records to a new platform.

The bottom line: In addition to downgrading our economic moat rating to narrow, we reduced Intuit’s fair value estimate to $495, from $535 previously, and changed our Morningstar Uncertainty Rating to High from Medium. Shares remain moderately undervalued following our adjustments.

• As of March 4, Intuit stock climbed 23% from its February low, and we think there is further room for growth as the market corrects its AI-related fears, given Intuit’s solid fundamentals.
• For Intuit’s stock price to return to last year’s pre-selloff level of $600 and above, we need to see consistent double-digit annual increases in average revenue per user across its business and consumer portfolios, a possible result of the outstanding execution of its AI playbook.

Between the lines: Intuit’s AI playbook is centered on both price increases and customer acquisition. Seamless integration of artificial and human intelligence should support its premium product positioning. Native integration with Claude and ChatGPT should also help expand its customer reach.