Anthropic's latest AI tools sparked a tech-stock panic last week.
Yet, Morgan Stanley's Mike Wilson remains optimistic about tech and software sectors.
He shared nine stock picks from software analyst Keith Weiss, including MSFT, TEAM, and NOW.
After Anthropic's Claude AI briefly induced panic for tech stocks last week, investors are grasping for answers on what comes next.
Morgan Stanley's Mike Wilson had some comforting words for investors still reeling after the abrupt drop. The bank's equity strategy chief reminded investors to keep their eye on the ball, expressing a constructive outlook for software and the broader AI-powered tech sector.
"The combination of weak price action in Software, hyperscaler capex guides and last week's de-gross led to a flurry of investor questions on how much downside is left in areas perceived to be disrupted by AI," Wilson wrote. "Last week's events also led to questions around whether the market is now likely to discipline high capital spending by the hyperscalers in a structural way. In this context, we point out a few 'glass half full' observations."
He continued: "Bottom line, periods like last week are not uncommon in major investment cycles where volatility bands can widen and dispersion is higher at times. That said, fundamental tailwinds remain in place for the AI enabler complex, and the AI adopter trade remains underappreciated, in our view."
Wilson laid out several reasons to stay positive on software stocks, including:
12-month forward earnings growth expectations are 18%, which Morgan Stanley said is a multi-decade high
The 12-month forward price-to-earnings ratio is now at 27 — that's in the 12th percentile since 2023 for the group of mega-cap stocks, the bank said
Investors still like AI capex. While the narrative is that the market is starting to punish spending, stocks that have higher spending levels relative to their sales are outperforming
Earnings revisions breadth is starting to climb in different areas of the tech sector, signalling rising optimism across a greater number of stocks
Investors are still rewarding companies that adopt AI. MS said that, on average, AI-adopting firms are outperforming non-adopters the day after earnings reports by around 1%
Finally, the US dollar is down 9% over the last 12 months. Since many of the mega-cap firms have foreign sales exposure, they should benefit from heightened demand from international customers
The bank highlighted nine tech stocks that its software team leader, Keith Weiss, likes at the moment.
Analyst commentary: "Overwhelmingly cited by CIOs as the largest IT wallet share gainer from both the move to the Cloud and adoption of GenAI technologies, Microsoft positions as a clear participant in the most important innovation cycles in technology, while trading at an attractive 1.2X PEG ratio on CY26e GAAP EPS. Further acceleration in Azure as capacity opens up and a ramping M365 Copilot product cycle — where 80% of CIOs in our most recent survey are already using or expect to be using the solution in the next 12 months — should act as important catalysts for the shares."
Analyst commentary: "Coming off of two straight years of accelerating revenue growth, product cycles in both the Global Business Solutions segment (Intuit Enterprise Suite) and the Consumer segment (TurboTax Full Assist) have the ability to drive a third year of accelerating growth. At the same time, internal usage of AI tools should enable solid margin expansion which should prove the current multiple at 27X CY26e GAAP EPS or a 1.1X PEG ratio very attractive."
Analyst commentary: "The front office stands in the eye of the storm in terms of workflows CIOs expect to further automate with GenAI capabilities, and ranking #4 on CIOs list of vendors gaining IT wallet share with the adoption of GenAI, Salesforce stands well positioned to benefit. In their most recent 3Q25 results, Salesforce saw AI-related ARR grow 114% YoY, now surpassing $1.4 billion as the Agentforce ($500 million in ARR) and Data Cloud product cycles swiftly ramp. At 24X CY26 GAAP EPS, we see an attractive entry point ahead of these product cycles set to well illustrate Salesforce's participation in the GenAI innovation cycle."
Analyst commentary: "While Q4 results were not strong enough to break through the noise, our forward FCF estimates moved up by 6% following the print. With the core platform expansion into areas like ITOM, ITAM, CRM, Security, etc enabling stability in the core business, with ramping product cycles around the ProPlus sku and Data Fabric, along with expanding margins, we see more revisions on the horizon."
Analyst commentary: "In their most recent results, Atlassian showed improving Net Revenue Retention rates (3rd quarter straight) and RPO growth topping 44% YoY. However a modest deceleration to 25% YoY organic Cloud growth sent shares lower. Given high exposure to software developers with their Jira and Confluence business, Atlassian has been the poster child for perceived AI disruption risks, however our work suggests these fears are not only incorrect, but directionally wrong and a far too narrow view on Atlassian's business."
Analyst commentary: "After a strong bounce off the bottom in 2025, debate on the size of the Q4 beat and anxiety on the initial FY27 guide have weighed on shares. While the initial guide is something to get through, our checks remain constructive and Snowflake saw the largest expected acceleration in growth amongst large cap software in our recent CIO survey. Data infrastructure has been one of the few areas of software spending strength over the last 12-18 months as customers prioritize data modernization and data readiness initiatives as part of a broader enterprise AI strategy, a trend we see continuing into CY26 and supporting high-20's topline growth in Snowflake."
Analyst commentary: "A high pace of product innovation, market leadership as Cloudflare manages and secures >20% of global internet traffic, consistent financial execution as evidenced through an average 32% YoY revenue growth over the past 8 quarters, and adaptability of the business model mark this company as a Best Athlete in software — well able to take advantage of the opportunities derived from a high pace of technological and business model change."
Analyst commentary: "Historically, Shopify has been able to accelerate their share gains in periods of technological change or market disruption. With the advent of Agentic Commerce on the horizon, we see Shopify again best positioned to accrue more than their fair share of an expanding online commerce pie. With the company leading the charge in terms of well utilizing AI technologies to drive leverage in the business, we see the potential for durable 25%+ FCF growth ahead."
Analyst commentary: "GenAI provides multiple tailwinds for Cybersecurity — expanding the surface area of technology to be protected, increasing the sophistication of attacks from bad actors and bringing new regulations on data security. The expanding portfolio at Palo Alto Networks remains our favorite play on these positive demand dynamics."
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