Morgan Stanley: Software Selloff Overdone, Names 8 AI Winners

Morgan Stanley pushed back against negative investor sentiment toward the software sector, telling investors in a note on Tuesday that the market has become "too negative on the group" and naming eight Overweight-rated companies best positioned for the AI era.

Analyst Rationale

Led by Keith Weiss, the analysts believe the recent selloff does not reflect the strong fundamentals of leading software companies, especially those benefiting from the AI shift. They noted that demand for cloud software and cybersecurity solutions remains robust, making current valuations attractive.

The Eight Selected Stocks

The list includes:

• Microsoft (MSFT) – Dominance in productivity tools and AI-powered cloud services.
• ServiceNow (NOW) – Workflow automation platform leveraging AI for efficiency.
• Shopify (SHOP) – E-commerce platform integrating AI tools to boost merchant performance.
• Palo Alto Networks (PANW) – Cybersecurity leader focusing on AI-driven security solutions.
• CrowdStrike (CRWD) – Endpoint security and threat detection using AI.
• Snowflake (SNOW) – Cloud data platform enabling advanced AI analytics.
• Datadog (DDOG) – Cloud monitoring and observability platform.
• Salesforce (CRM) – CRM giant investing in generative AI.

Context

The recommendation comes after a sharp decline in tech stocks, with the Nasdaq 100 falling about 5% over the past month. Morgan Stanley's view contrasts with some other banks that have downgraded software stocks.

Conclusion

Morgan Stanley's note suggests the recent selloff may present a buying opportunity for long-term investors, particularly in AI-related names. However, investors should assess individual stock risks.