As the earnings season approaches, investors are increasingly looking for opportunities that can provide substantial returns. Morgan Stanley has identified a group of technology stocks that are currently rated as overweight, suggesting they are excellent buying choices ahead of their quarterly earnings announcements. With household names like Microsoft, Apple, and Atlassian on this list, this article delves deeper into why these companies are attracting attention and what investors should consider going forward.
Microsoft remains a focal point in Morgan Stanley’s recommendations. According to analyst Keith Weiss, despite the company’s stock appreciating nearly 14% in 2024, it remains highly undervalued at current levels. Investors may be wary, however, as there seems to be a general atmosphere of caution surrounding Microsoft’s gross margins, capital expenditures, and emerging artificial intelligence (AI) monetization strategies in its partnership with OpenAI.
Weiss contends that the skepticism around Microsoft’s financial health could provide a fertile ground for an upswing in investor sentiment, particularly with regards to the Azure cloud computing service. He anticipates that the company will report modest gains in its first fiscal quarter, but the real potential for stock appreciation lies in a robust performance anticipated in the second half of the fiscal year. This insight could be integral for investors looking to make strategic decisions in the lead-up to Microsoft’s earnings announcement on October 30.
Next on the list is Atlassian, a company that has seen its shares decline by over 20% in 2024. Weiss notes that the growth concerns surrounding Atlassian are somewhat excessive; the underlying fundamentals appear strong, suggesting a return to more than 20% growth is achievable. This expectation is bolstered by his observations of a stable demand environment for Atlassian’s products, as well as the company’s agile approaches to marketing and product expansion.
Investors might find Atlassian particularly compelling because the software company has a unique positioning in the market. Weiss emphasizes that the firm’s focus on cross-selling and upselling opportunities will be pivotal in driving growth. With an upcoming earnings report on October 31, would-be investors could see this as an opportunity to capitalize on what Weiss describes as a “unique software asset” poised for margin expansion and sustainable growth.
Apple’s position as a top pick despite headwinds surrounding its iPhone 16 sales is noteworthy. Morgan Stanley analyst Erik Woodring acknowledges that although there are signs of mixed demand for the latest iPhone models, there have been no indications of production cuts. Woodring reassures investors that the overall forecast for Apple remains bullish, particularly with expectations for a strong performance in the September quarter.
Moreover, Woodring suggests that fluctuations in immediate sales data or market dynamics are unlikely to shift long-term investor confidence in Apple. With an increase of 20% in its stock price in 2024, the expectation of robust earnings results could further solidify investor sentiment, reinforcing the idea that short-term challenges will not derail the company’s prolonged success.
Fortinet, one of the firm’s top picks, is garnering attention for its prospects linked to the refresh cycle in cybersecurity. While its near-term outlook suggests stable demand without any major disruptions, long-term considerations indicate a favorable environment for accelerated growth as businesses flush budget reserves in the fourth quarter.
Morgan Stanley believes that the increased focus on cybersecurity will drive demand in the coming quarters, underscoring the opportunity for Fortinet to expand its customer base significantly. Investors may want to keep an eye on potential billings that align with the consensus as they assess the stock’s risk-reward profile.
As we approach a critical earnings period, Morgan Stanley’s endorsements of Microsoft, Atlassian, Apple, and Fortinet put these stocks at the forefront of investor interest. Each company possesses unique qualities that not only showcase potential for growth but also provide a cushion against market volatility. For investors, understanding these dynamics could be essential for navigating the upcoming earnings season and making informed decisions that capitalize on the strengths of these leading tech firms. With careful consideration and strategic planning, investors may find robust advantages by aligning their portfolios with these recommended stocks.