Morgan Stanley reset its software coverage, assuming Adobe NASDAQ:ADBE and Workday NASDAQ:WDAY at Underweight and Salesforce NYSE:CRM and Intuit NASDAQ:INTU at Equal-Weight, while naming eight stocks as its highest-conviction Overweights: Microsoft NASDAQ:MSFT, Palo Alto Networks NASDAQ:PANW, CrowdStrike NASDAQ:CRWD, Cloudflare NYSE:NET, Datadog NASDAQ:DDOG, ServiceNow NYSE:NOW, Snowflake NYSE:SNOW and Shopify NASDAQ:SHOP.
Analyst Adam Wood said the market has become "too negative on the group," pointing to a software index that has trailed the Nasdaq 100 by 40% and the S&P 500 by 30% over the past two years as investors question long-term earnings durability. Morgan Stanley kept an Attractive industry view and said it agrees the sector has matured, but sees more opportunity than investors currently credit.
Wood framed the sector as moving through a "buy then build" cycle, with infrastructure and cybersecurity benefiting from the current build phase while application software sits later in the cycle. Adobe shares dropped 4.95% in premarket while Workday fell 5.54%.