Upcoming software earnings 'unlikely to re-rate' SaaS stocks broadly: MS

Investing.com -- Upcoming first-quarter earnings from software companies are unlikely to be the catalyst for a broad re-rating of the software-as-a-service sector, Morgan Stanley said, even if results come in ahead of expectations.

In a note from analyst Josh Baer, the bank explained that the market's focus on artificial intelligence disruption to SaaS has "pressured narratives and multiples for some time, as investors price competition, business model, margin, and terminal value risks."

The bank mentioned that while fundamental strength could now be rewarded, "Q1 does not look to be the catalyst quarter for SaaS."

Morgan Stanley argued that modest beats and constructive management commentary will not be sufficient to drive a re-rating.

Instead, the firm said clear evidence of acceleration and meaningful positive estimate revisions would be needed to refute the AI bear case. The group currently trades at just 2.6 times enterprise value to next-twelve-months sales.

Among individual names, Morgan Stanley prefers Samsara and Box heading into the print. On Box, the bank cited leading growth indicators already in the teens, improving net revenue retention and an Enterprise Advanced product cycle driving 30% to 40% pricing uplift versus Enterprise Plus, calling it the clearest path to durable double-digit growth in the content and collaboration space.

On Salesforce, Morgan Stanley said AI and Agentforce consumption remains early, pointing instead to the second half as the better timing for a catalyst. On Workday, the bank said it lacks conviction in the current remaining performance obligation guidance, "given weakness around bookings last quarter."

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