Morgan Stanley has delivered a reassuring message to investors following last week’s tech stock selloff triggered by Anthropic’s latest Claude AI tools. The investment bank’s equity strategist Mike Wilson outlined six positive takeaways for the software sector and identified nine attractive stock picks despite recent market turbulence.
According to Morgan Stanley, the tech stock downturn presents buying opportunities rather than warning signs. Wilson emphasized that fundamental tailwinds remain intact for AI-enabled companies, while the market continues to underappreciate AI-adopting firms.
Morgan Stanley Identifies Key Positive Indicators for Tech Stocks
The bank highlighted several encouraging metrics for the software sector. Twelve-month forward earnings growth expectations have reached 18%, representing a multi-decade high, according to Morgan Stanley’s analysis. Meanwhile, the forward price-to-earnings ratio has dropped to 27, placing it in the 12th percentile since 2023 for mega-cap stocks.
Additionally, Wilson noted that investors continue to reward capital expenditure in artificial intelligence. Companies with higher spending levels relative to sales are currently outperforming their peers, contradicting concerns that markets would punish heavy AI investments.
Earnings Revisions and Currency Tailwinds Support Growth
Morgan Stanley observed that earnings revisions breadth is climbing across different tech subsectors, signaling rising optimism for a broader range of stocks. The firm also noted that AI-adopting companies are outperforming non-adopters by approximately 1% on the day after earnings reports.
The US dollar’s 9% decline over the past 12 months provides an additional tailwind for mega-cap technology firms with significant foreign sales exposure. This currency movement should boost international demand, according to the bank’s assessment.
Nine Stock Picks Across Software and Tech
Morgan Stanley software analyst Keith Weiss identified Microsoft, Intuit, and Salesforce as top picks among large-cap names. The bank noted that Microsoft overwhelmingly leads in CIO wallet share gains from cloud migration and generative AI adoption, while trading at an attractive 1.2 times price-to-earnings growth ratio.
ServiceNow earned recognition for its platform expansion and ramping product cycles. Atlassian received attention despite recent share price weakness, with Morgan Stanley suggesting fears about AI disruption are misplaced and overly narrow in scope.
The remaining recommendations included Snowflake, Cloudflare, Shopify, and Palo Alto Networks. Morgan Stanley highlighted Snowflare’s data infrastructure strength and Cloudflare’s market leadership managing over 20% of global internet traffic as key investment themes.
AI Innovation Cycle Continues Despite Volatility
Wilson characterized last week’s market volatility as typical during major investment cycles. However, he maintained that such periods do not undermine the fundamental transformation underway in technology sectors driven by artificial intelligence capabilities.
The bank emphasized that GenAI adoption remains a priority for enterprise customers. In Morgan Stanley’s most recent CIO survey, 80% of respondents indicated they are already using or expect to use Microsoft’s M365 Copilot solution within the next 12 months.
Investors will continue monitoring upcoming earnings reports and guidance from major technology companies to assess whether Morgan Stanley’s optimistic outlook proves accurate. The bank’s analysis suggests current valuations offer attractive entry points for long-term investors, though market uncertainty around AI disruption risks remains a consideration.
