Investing.com -- Morgan Stanley upgraded contract research organization (CRO) provider Charles River Laboratories while downgrading IQVIA, arguing that improving biotech funding and portfolio changes create a more attractive risk-reward profile for Charles River, while longer-term uncertainty tied to artificial intelligence and pharma insourcing weighs on IQVIA.

The brokerage said demand conditions for preclinical research are showing signs of recovery as biopharma funding improves, increasing the likelihood of a turnaround in Charles River's Discovery and Safety Assessment business. Recent acquisitions and divestitures are also expected to sharpen the company's focus on core operations, including regulated safety assessment, research models, and biologics testing.

Morgan Stanley upgraded Charles River Laboratories to Overweight and set a $220 price target, implying about 14 times its 2026 EBITDA estimate. The bank expects the company to benefit from rising outsourcing penetration, geopolitical shifts and its scale in preclinical research, while forecasting double-digit earnings growth through 2028.

At the same time, Morgan Stanley downgraded IQVIA Holdings to Equal-weight and lowered its price target to $200 from $225. The brokerage said investors are increasingly debating whether pharmaceutical companies could use AI tools to bring functions such as data management, statistical analysis and medical writing in-house, potentially reducing reliance on outsourced research providers over time.

The bank estimated that around 30% of typical clinical trial costs are tied to functions commonly outsourced to CROs and noted that large drugmakers are investing in AI-enabled infrastructure that could gradually shift some work internally. While Morgan Stanley does not expect near-term risks to IQVIA's earnings forecasts, it sees uncertainty around the evolution of AI and pharma insourcing as a potential constraint on valuation expansion.

Morgan Stanley also highlighted IQVIA's leverage profile, noting that higher interest costs and upcoming debt maturities could limit flexibility for future share repurchases, which have been a key contributor to earnings-per-share growth in recent years.

Despite the downgrade, the brokerage said IQVIA remains well positioned through its data assets, technology offerings and exposure to both clinical research and commercial services, but believes a clearer demonstration of AI-driven benefits and sustained demand will be needed before the stock commands a higher valuation multiple.