Intuit Inc. (INTU, Financial) has an established moat and focuses on small and medium-sized businesses rather than larger businesses, which often seek services from more technologically expansive and diversified peers. This niche focus and a leading market cap positions the company to succeed at an inflection point where artificial intelligence and automation capabilities are rapidly changing the accounting industry.

While the stock is richly valued and does present some risk, it is unlikely to experience significant long-term contraction based on my operational and financial analysis. I believe the stock will decline in price in the next 12 months, but I believe that over the next five to 10 years, its fundamental growth could outperform current Wall Street estimates as it capitalizes on exponentially improving AI capabilities.

Operational analysis

Based on my research, there is a significant opportunity with an investment in Intuit as the accounting field transitions from traditional human-led governance to AI-automated software. For example, the company is the power behind QuickBooks, the small business accounting and financial management software. Further, management is heavily investing in AI, including the introduction of Intuit Assist, a generative AI-powered assistant that provides personalized recommendations across Intuit's platforms. These platforms include TurboTax, ProConnect, Lacerte and ProSeries to manage tax obligations. It is also the company behind Credit Karma, a credit services and personal financial management company, and Mailchimp, an email marketing platform to manage campaigns.

In an effort to streamline its operations and begin to capitalize more readily on automation capabilities, management has launched an enterprise suite that integrates its products with AI to automate essential finance and accounting practices. This unified approach simplifies financial management for businesses, and I believe it is one of the core reasons the company is favorably positioned operationally for the long term.

In contrast, the traditional accounting industry has seen declining revenue per professional due to the commoditization of basic services like bookkeeping and data entry. Businesses are finding they can get a lower cost and higher accuracy from digitally automated software like those provided by Intuit. To highlight the company's comparative strength, it managed to increase its small business and self-employed group revenue by 20% in the fourth quarter.

Intuit is a favorable investment in the automated accounting field against its competitors, primarily because it has a significantly higher market cap than peers like Sage Group (LSE:SGE, Financial), Xero (ASX:XRO, Financial) and H&R Block (HRB, Financial). The one obvious outlier here is that Intuit competes with Oracle's (ORCL, Financial) NetSuite. However, Oracle has a much broader technological focus, so Intuit is uniquely positioned with a narrower focus, making it a more formidable concentrated investment in automated accounts management. The big difference between Oracle's NetSuite and Intuit's QuickBooks is that the latter is ideal for small businesses, but the former is much more suited for industries requiring more comprehensive business management solutions.

Further, Sage Group is particularly strong in Europe and North America for accounting, payroll and payment systems for SMBs. Xero has well-established cloud-based accounting software, targeting small businesses, and competing directly with Intuit's QuickBooks. H&R Block competes in the consumer tax preparation space with software-based services. The company has a history of traditional tax preparation, but it is working to bridge into automated services.

Financial and valuation analysis

The market is correct to value Intuit highly as it is well-positioned at an inflection point in the accounting market to grow exponentially as trends shift toward automated accounting and financial management. However, this does open up valuation risk, which is made evident in its high price-earnings ratio of 62, although this is reduced to 33.50 on a forward basis, outlining the exceptional growth being delivered.

However, its three-year annual revenue growth rate is currently 17.60% and its future three-to-five-year annual revenue growth estimate is 12.20%. This reduction opens up some reason for temperance in allocation, especially as the valuation is already high, but I believe we could see further expansion in the revenue growth rates in the future as AI capabilities and automated accountancy technology become more widely adopted and spread as a result of network effects.

Intuit also benefits from stable earnings per share growth, which, while showing lower rates of return than its smaller peers in recent years, also gives it less volatility risk.

That being said, the market has been relatively efficient here; with Xero's price-earnings ratio more than double that of Intuit, I believe the latter has a stronger risk-reward profile. Similarly, Sage might seem cheap on the surface, but it is growing far slower than Intuit on the top line. Therefore, I think we are getting the right balance here between stability, relatively decent valuation and a strong moat in market cap from Intuit. Xero might be the higher growth alternative for investors willing to take on more risk, but as a risk-averse long-term investor, I see no reason to take this on, considering that over the past five years, both companies have returned roughly the same in price, with Intuit showing somewhat less volatility.

Focusing on Intuit as a standalone company, its 10-year revenue growth rate is 15.60%, but as I mentioned, the next three to five years show an estimate of 12.20% revenue growth per annum. Its historical 10-year median price-sales ratio is 9, but it is currently 11.30. Therefore, I think we can expect a contraction from the current sales multiple down toward 10 over the next 12 months. If the July 2025 revenue estimate of $18.27 billion is met, the company could have a market cap of $164.43 billion. This is a reduction from the current market cap of $183.63 billion, primarily due to a short-term contraction in annual revenue based on the Wall Street consensus and the associated medium-term price-sales ratio contraction that I forecast.

However, looking more long term, I believe we could see an expansion in the current Wall Street estimates for Intuit's fundamental growth. I expect that as AI and robotics capabilities become more widespread, the market for accounting will be one of the first industries to radically change. I believe this to be the case because, as it stands, the rate of improvement for AI is exponential, and I believe businesses that are offering services that capitalize on efficiency trends will benefit highly as intelligent technology capabilities scale more rapidly. Therefore, I am long-term bullish on Intuit to deliver alpha.

Risk analysis

While I mentioned there could be underlying catalysts that could support more rapid adoption of Intuit's services, especially as its software capabilities scale, it is also important to recognize the market may not develop this way. In a bear case outcome, Intuit's capabilities may not scale as rapidly as I hope and its markets could become saturated, particularly in its core segments like accounting and tax preparation software. There is also the likelihood that as extremely high-power AI and automation capabilities become available, companies like Intuit will be more heavily regulated to comply with government standards to ensure safe practice without the previously stringent human oversight.

This tax season, Intuit reported that 10 million individuals used TurboTax for free, which is a decrease from over 11 million in the previous year. This understandably raises concerns about the company's ability to retain users and comes at a time when slowing revenue growth forecasts are disconcerting for investors.

This issue was compounded by the fact taxpayers in 12 states were allowed to file taxes directly with the IRS online for free in a new pilot program. The program was used by approximately 140,000 people and is set to expand, potentially increasing competition for Intuit's free offerings, which are part of its network ecosystem, often progressing to paid subscriptions. Despite the recent decline, total TurboTax revenue grew by 17% in fiscal 2024 with an increase in average revenue per user, showing resilience and strong client satisfaction even amid pressures on its non-core customers. CEO Sasan Goodarzi emphasized that the company is not focused on retaining customers who are looking to frequently switch to free services.

Conclusion

This investment should show some near-term downside volatility, but over the long term, I believe there are undervalued growth catalysts that could improve returns. Intuit has a formidable market-leading position in automated accounting software, and I expect this moat to expand over the next five to 10 years. Its only more dominant competitor, Oracle, is focused primarily on larger clients, meaning there is a distinct operating model for Intuit to continue to capitalize on. Smaller peers like Xero and Sage are not large enough to provide the level of competitive threat needed to warrant caution from competitive risk. However, a failure for the market to evolve and for AI to proliferate as readily as I currently predict could cause a major slowdown in Intuit's growth rates as a result of market saturation and potential pushback from regulators on the fair use of advanced automation in accounts management. Despite the risks, I am long-term bullish on Intuit and rate it a buy.