As earnings season approaches, investors are keenly watching the stock market for signals on potential buys, particularly in the technology sector. According to a recent analysis from Morgan Stanley, several tech stocks currently rated overweight are compelling candidates for investment ahead of their quarterly earnings reports. This article delves into the firms highlighted by Morgan Stanley—Microsoft, Apple, Atlassian, and Fortinet—providing a well-rounded examination of why these stocks may be worth considering as earnings announcements loom.
Morgan Stanley’s analyst Keith Weiss has noted that even though Microsoft’s stock has risen nearly 14% in 2024, the investment community should pay close attention to it as it remains a robust investment option. Weiss pointed out a growing sense of trepidation among investors, driven by concerns around key metrics such as gross margins and capital expenditures, as well as questions regarding the monetization of generative AI technologies and Microsoft’s relationship with OpenAI.
Despite these apprehensions, Weiss maintains an optimistic view of Microsoft’s cloud services, particularly its Azure platform. The analyst anticipates that there will be a modest positive impact on the company’s performance in the first quarter of fiscal year 2024, but suggests that a more significant catalyst for stock performance could be a rebound in investor confidence in Azure’s growth potential during the latter half of the fiscal year. Microsoft is set to unveil its quarterly results on October 30, providing an important opportunity for investors to assess its performance directly.
Atlassian: Addressing Growth Concerns
Similarly, Weiss views Atlassian as a firm that remains a favored pick despite its shares declining by over 20% this year. The recent underperformance can be attributed to fears regarding growth, but Weiss argues that these concerns may be overstated. He projects a pathway for the company to regain growth trajectories exceeding 20%. This recovery, he suggests, will be supported by their expanding product offerings, coupled with focused marketing efforts aimed at enhancing cross-selling and upselling opportunities.
Moreover, a recent survey conducted by Morgan Stanley indicates stable demand for Atlassian’s products, as partners in the ecosystem have largely met or surpassed expectations. The analyst labels Atlassian a “unique software asset,” anticipating that its valuation will undergo expansion in margins. With the upcoming earnings report expected on October 31, investors are encouraged to consider buying in at these dip levels.
Apple remains a perennial favorite in the tech arena, and Morgan Stanley’s analysts are standing by their bullish outlook as the company prepares to announce its quarterly earnings report, also on October 31. Analyst Erik Woodring notes that while there are mixed signals concerning the demand for the iPhone 16, which could raise concerns, no significant indications of production cuts have emerged.
The anticipated earnings are expected to exceed market expectations, with Woodring suggesting that the influence of short-term market dynamics on the company’s long-term prospects—enhanced by the company’s ongoing advancement in creating robust AI functionalities—will be limited. The tech giant has already seen its shares climb 20% in 2024, which may reflect resilient investor confidence despite the nuances that often accompany product cycles.
Fortinet’s potential for upside comes from a combination of refreshing its product line and capitalizing on an expansive customer base. Morgan Stanley has identified Fortinet as a top pick, citing indicators that point to steady demand in the near term. The firm does expect some alignment with consensus billings but anticipates a noticeable increase in growth driven by heightened budget flushes in the fourth quarter of 2024.
In the following half of the fiscal year, as Fortinet engages in strong refresh activity, its revenue outlook is expected to significantly benefit from this strategic positioning. The firm has noted that the stock, currently trading at a value that reflects substantial upside, represents a favorable risk-reward balance for long-term investors.
As the technology sector prepares for a critical earnings season, Morgan Stanley’s research shines a spotlight on Microsoft, Apple, Atlassian, and Fortinet as stocks worth considering. Despite prevailing sentiments that may appear bearish in the short term, each company presents unique strengths and opportunities for growth that could yield considerable returns for investors. By carefully analyzing these firms and their upcoming quarterly performances, investors can position themselves to take advantage of any positive shifts in market sentiment that follow.