MS - Bending the AI Cost Curve_20250127pdf
MS - Bending the AI Cost Curve_20250127pdf
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  1. M UpdateSoftware & Microsoft | North AmericaBending the AI Cost CurveDeepSeek's V3 and R1 release suggest model improvements could be bending the GenAI cost curve. As believers in Jevon's Paradox, we view this as a positive for Software companies, who are already actively driving towards lower inference costs to drive adoption. In particular, a positive for MSFT. Morgan Stanley & Co. LLCKeith Weiss, CFAEquity AnalystKeith.Weiss@morganstanley.com+1 212 761-4149Josh Baer, CFAEquity AnalystJosh.Baer@morganstanley.com+1 212 761-4223Theodor J ThunResearch AssociateTheo.Thun@morganstanley.com+1 212 761-5356SoftwareNorth AmericaIndustry ViewAttractiveWhat Happened? DeepSeek, a Chinese startup, released two primary models, DeepSeek-V3 (released in December 2024) and DeepSeek-R1 (released in January 2025), leveraging several breakthroughs in model architecture unlocking approximately in-line performance with current frontier models at a reportedly much lower training compute cost. The headlines suggesting that the v-3 model was trained in 2 months using ~2,000 Nvidia H800 chips, which cost roughly ~$6 million, while other sources expect DeepSeek to have a much greater than reported compute capacity. While this is raising questions across the technology landscape as it defies the consensus view that compute scaling is the primary vector of model improvements, we see it as a positive development for the Software ecosystem.AI Input Costs Coming Down for Software Vendors. We see greater algorithmic efficiencies at the model layer, as a positive for Enterprise Software. More cost-efficient models are bringing down ‘GenAI input costs’ for the broader Software ecosystem, as the companies in our coverage are predominantly building solutions around these models (rather than selling the models themselves). Further, these efficiency improvements do not come as a surprise to the Software ecosystem, but rather the companies in our coverage have already actively driven towards lowering these input costs themselves as the majority of Software companies likely view lower input costs as driving higher utilization (an expression of Jevon’s Paradox). Examples of that are: °Microsoft is focused on its “Phi” small-language model (SML) strategy, as its Phi-4 14B model recently delivered on-par benchmark results with Llama-3.3 70BMorgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.Key TakeawaysDeepSeek model release suggests the GenAI input costs for software may be decreasing, which should boost product adoption across our coverageVendors across our coverage are in the business of building AI solutions, not reselling models which lowers revenue risk from cheaper modelsIn fact, several vendors are already actively investing behind more cost-efficient models, emphasizing the importance and preparednessMicrosoft, while also in the business of reselling models, derives most of its revenue from inference and could see potentially higher FCF due to reduced capexJanuary 27, 2025 05:11 PM GMT
  2. M Update2°ServiceNow uses its own domain-specific custom language model in cooperation with Nvidia to run inference more inexpensively°Snowflake trained its Arctic 17B LLM delivering on-par performance on certain enterprise benchmarks and best-in-class SQL performance at a training compute budget of only $2 million°Elastic has built Elastic Learned Sparse EncodeR (ELSER), a retrieval model, also to lower the cost of out-of-the-box semantic search for AI applicationsMicrosoft – Near-term Revenue Worries Offset by Broader Adoption and FCF Upside Potential. While Microsoft is also selling models, the company is not an exception to the rule and we view these developments as a positive for the stock. 1. As mentioned above, Microsoft is already focused on its “Phi” small-language model (SML) strategy, signaling a focus on pursuing cost-efficient models over maximizing training compute to build the most-intelligent frontier model. its The company's Phi-4 14B model recently delivered on-par benchmark results with Llama-3.3 70B.2. Microsoft is not tied directly to OpenAI’s success nor are their goals identical (not mutually exclusive either), which is highlighted by CEO Satya Nadella’s comments on a recent podcast speaking about how Microsoft is not in the business of building frontier models as well as Microsoft’s most recent actions in the Stargate project where the company has declined its option to be the sole infrastructure provider. In terms of today’s revenues at risk, Microsoft does not recognize any of OpenAI’s training revenues, but the majority of AI revenue for the company is already driven by inference. While the cost of inference may go down near-term as these algorithmic efficiencies diffuse into other models, this takes time and customers are unlikely to rip and replace LLMs powering applications in the meantime. Once the algorithmic efficiencies diffuse and inference costs are lower, we expect that higher usage will offset lower pricing of (see Jevon’s Paradox).3. At the recent Build developer conference, Microsoft CEO Satya Nadella told the audience he sees foundational models as becoming increasingly commoditized, and pointed to Azure’s support of over 1,800 models (including Foundational models, Small Language models, domain specific models) and the supporting infrastructure to build commercial applications using these models as the reason to utilize the platform (versus the exclusivity of their access to the OpenAI models). This is also likely the rationale for Microsoft to implicitly choose not to act as a broader supplier to the recently announced Stargate venture (see report). So while we estimate ~$5 billion of Azure revenues today are directly attributable to OpenAI, which may see pressure from a lower cost alternative like DeepSeek, in our view the far greater opportunity is the build out of enterprise applications utilizing these models for 100,000’s of customers. As seen in our 4Q24 CIO survey, Microsoft has a commanding lead as the #1 wallet share gainer as CIOs invest for GenAI, with 41% of CIOs in our most recent survey already using Azure AI or expecting to in the next 12 months.4. Most bullish, we have discussed potential downside risk to our FY26-29 capex estimates in our preview, as we see the 36x increase in compute
  3. M UpdateMorgan Stanley Research3capacity implied by capex estimates as aggressive in-light of both, the fact that it should embed very little training infrastructure and the fact that Microsoft is aggressively driving towards running models more efficiently. We now feel more confident in that view, which could be a significant positive for free cash flow growth in the out years, where we are already above the street. MS ests are at $95B FY26 capex and $82B FY26 FCF (+28% YoY), so for every 10% lower capex next year, it could translate into 10%+ upside on FCF. Historically, the company has spoken to forward year (FYE June) on the F3Q April earnings call, but Microsoft has a tendency to give a qualitative multi-quarter view even on its F2Q January earnings call to avoid near-term surprises, which should be a key investor focus into Wednesday’s earnings call.
  4. M Update4Risk Reward - Microsoft (MSFT.O)$540.0033xBaseCaseCY26eEPSof$16.36.33xPEisinlinewithlargecapsoftwarepeers,2.1xPEGisapremiumtopeersandMSFThistoricalPEG,warrantedgivendurabilityofEPSCAGRandhighconvictioninourestimates.MeanMorgan Stanley EstimatesConsensus Price Target Distribution$425.00$650.00Source:Refinitiv,MorganStanleyResearMS Rating▪Strongpositioningforpubliccloudadoption&AI,largedistributionchannelsandinstalledcustomerbase,andexpandingmarginssupportsEPSgrowth.Weakercyclicalenvironmentimprovesascloudoptimizationscomplete-LTtrendsremaindurable.▪Teensrevenuegrowth,opexdisciplineandstrongcapitalreturnleadtodurablemid-tohigh-teenstotalreturnprofilelongter▪At~26xCY26eGAAPEPS,MSFTtradesatadiscounttothelargecappeers,unwarrantedduetoMSFT'spremiumreturnprofile.Multipleexpansionandpositiestimaterevisionswillcomefromgreaterthanexpectedstrengthincommercialbusinessincomingyears.Consensus Rating Distribution93%Overweight7%Equal-weight0%UnderweightSource:Refinitiv,MorganStanleyResearRisk Reward ThemesNewDataEra:PositivePricingPower:PositiveSecularGrowth:PositiveView descriptionsofRiskRewardsThemeshere$659.0036.5xBullCaseCY26eEPS:$18.06Azure,O365&RobustContributionfromAIDriveTop-LineGrowth.AccelerationinAzuregrowth,adoptionofhigherpricedO365CommercialSKUsandcontinuedseatgrowth,androbustadoptionofAzureAIservicesandMicrosoftAICopilotsacrossbusinesslinesdrivehigh-teensrevenueCAGR inthecomingyears.Operatingmarginsexpandto~47%byCY26andCY26eEPSis$18.06.36.5xPErepresentsapremiumtolargecapsoftwarepeers,butin-linewithlargecapPEGat1.7xgiven21%EPSCAGR.$540.0033xBaseCaseCY26eEPSof$16.36Azure,O365&RampingContributionfromAIDriveTop-LineGrowth.DurabilityofAzuregrowth,adoptionofhigherpricedO365CommercialSKUsandcontinuedseatgrowth,andrampingadoptionofAzureAIservices&MicrosoftAICopilotsacrossbusinesslinesdrivemid-teensrevCAGRahead.Operatingmarginsexpandto~45%byCY26andCY26eEPSis$16.36.33xPEisin-linewithlargecapsoftwarepeers,2.1xPEGisapremiumtoMSFThistoricalPEG,justifiedduetodurabilityofEPSCAG$316.0021.5xBearCaseCY26eEPS:$14.68Macro,Scale&LimitedAIAdoptionDrivesTop-LineGrowthDeceleration.Azuregrowthcontinuesdecelerationgivenscale,whileO365reachespenetrationandadoptionofAzureAIservices&MicrosoftAICopilotsacrossbusinesslinesremainslimited.Thisdriveslow-teensrevCAGR.Operatingmarginsonlyexpandto~42%byCY26andCY26eEPSis$14.68.21.5xPEisadiscounttolargecapsoftwarepeersandadiscountonaPEG,givena10%EPSCAGR.RiskReward–Microsoft(MSFT.O)Accelerating Growth&AILeadershipNotPriced-InPRICETARGETMS PT$503.55RISKREWARDCHARTANDOPTIONSIMPLIEDPROBABILITIES(12M)Key: Historical Stock Performance Current Stock Price Price TargetSource:Refinitiv,MorganStanleyResearch,MorganStanleyInstitutionalEquitiesDivision.TheprobabilitiesofourBulBase,andBearcasescenariosplayingoutwereestimatedwithimpliedvolatilitydatafromtheoptionsmarketasof24Jan2025.Allfiguresareapproximaterisk-neutralprobabilitiesofthestockreachingbeyondthescenariopriceineiththree-months’orone-years’time.View explanationofOptionsProbabilitiesmethodologyhere$444.06$659.00(+48.40%)Prob(>659.00)~3.7%$316.00(-28.84%)Prob(<316.00)~7.4%$540.00(+21.61%)Prob(>540.00)~21.6%JAN'24JUL'24JAN'25JAN'260200400600800USDOVERWEIGHTTHESISBULLCASEBASECASEBEARCASE
  5. M UpdateMorgan Stanley Research5Drivers20242025e2026e2027eAzure Revenue Growth (%)29.829.730.226.4Server Products On-Prem Growth (%)3.2(2.0)(1.0)(1.0)Gross Margins (%)69.868.067.066.7Operating Margins (%)44.644.344.444.8GAAP EPS Growth (%)20.37.316.321.13/5BEST24 MonthHorizon2/5MOST3 MonthHorizonSustainabilityofcommercialgrowth,cloudmomentum,improvingcloudmarginsImprovingPCdatapoints0-10%APAC, ex Japan, MainlandChina and India0-10%India0-10%Japan0-10%Latin America0-10%MEA0-10%Mainland China0-10%UK10-20%Europe ex UK50-60%North AmericaSource:MorganStanleyResearchEstimateView explanationofregionalhierarchieshereSource:Refinitiv,FactSet,MorganStanleyResearch;1thehighestfavoredQuintileand5istheleastfavoredQuintileInst. Owners, % Active56%HF Sector Long/Short Ratio2.1xHF Sector Net Exposure23.5%Refinitiv;MSPBContent.IncludescertainhedgefuexposuresheldwithMSPB.Informationmaybeinconsistentwithormaynotreflectbroadermarktrends.Long/ShortRatio=LongExposure/Shortexposure.Sector%ofTotalNetExposure=(Foraparticularsector:LongExposure-ShortExposure)/(Acrossallsectors:LongExposure–ShortExposure).Cloudadoptionaccelerates,withAzureasconvincingwinnerAIleadershipresultsinsubstantialrevenuecontributionover-timeOperationalefficienciesleadingtogreater thanticipatedeconomiesofscaleandmarginexpansionWeakmacroimpactingITspendingOn-premisescannibalizationbyCloudIncreasedinvestmentshurtmarginexpansionAIadoptionproveslimitedMeanMorgan Stanley EstimatesSource:Refinitiv,MorganStanleyResearFY Jun 2025eSales /Revenue($,mm)275,216285,116EBITDA($,mm)141,370161,096Net income($,mm)92,564106,652EPS($)12.3514.25RiskReward–Microsoft(MSFT.O)KEYEARNINGSINPUTSINVESTMENTDRIVERSGLOBALREVENUEEXPOSUREMSALPHAMODELSRISKSTOPT/RATINGRISKS TO UPSIDERISKS TO DOWNSIDEOWNERSHIPPOSITIONINGMSESTIMATESVS.CONSENSUS276,791278,260151,359151,54094,69397,06512.6613.00
  6. M Update6Risk Reward - Oracle Corporation (ORCL.N)$175.00Derivedfrombasecasescenarioof~24x(1.7xPEG,in-linewithOracle's5-yearaverageandaslightdiscounttoLargeCapTechpeers)CY26eEPSof$7.24for~14%EPSgrowthinCY26e.MeanMorgan Stanley EstimatesConsensus Price Target Distribution$130.00$227.00Source:Refinitiv,MorganStanleyResearMS Rating▪DespitepotentialopportunitiessurroundingOCI,existingdatabasecustomersandcloud-basedERPapplications,questionsremainsurroundingthepathforforwardEPSgrowthwiththeCerneracquisitionandslowingpaceofsharerepurchases.▪Whileincrementallymorepositiveonthetrajectoryoftop-linegrowthatOracle,givenoutstandinguncertaintiessurroundinginstalledbasemigrationandmargins,weremainEqual-weightwithapricetargetof$175.Consensus Rating Distribution60%Overweight38%Equal-weight3%UnderweightSource:Refinitiv,MorganStanleyResear$235.00~30xCY26eEPSof$7.80IncreasedOCIadoptionacceleratescloudrevenues,whilethedatabasecyclebolsterslicenserevenuesfromthetechnologybusiness.EPSimpactsfromthecloudtransitionaremutedbythestrongerdatabaselicenseswith~45%operatingmarginsdrivingEPSto$7.80forCY26.InvestorsaffordORCLa~30xmultiple(for~15.3%EPSgrowthinCY26).$175.00~24xCY26eEPSof$7.24Cloudservicescontinuetoseestrongadoptionoffsettingweaknessinlicenserevenue,drivingorganicrevenuetowards10%inFY25;operatingmarginsexpandmodestlyfromOpExsavingsinpartoffsetbyrevenuemixshiftweighingongrossmargins.Investorsafforda~24xmultipleonCY26EPS,basedon~14%EPSgrowth,whichisin-linewithOracle's5-yearaverage.$130.00~20xCY26eEPSof$6.48TheincreasingadoptionofCloudsolutionsisunabletooffsetthefallinglicenserevenuesatOracle,drivingcontinuedmargincompressionandslowingEPSgrowth,despitethestrongrecurringcontributionofthecustomerbase.ForwardEPSmultipleis~20xonCY26,asinvestorsareunwillingtocreditOracleforthelonger-termbenefitsthecloudtransition.RiskReward–OracleCorporation(ORCL.N)TepidRevenueGrowthCapsMultiplesandLimitsUpsidePRICETARGETMS PT$195.95RISKREWARDCHARTANDOPTIONSIMPLIEDPROBABILITIES(12M)Key: Historical Stock Performance Current Stock Price Price TargetSource:Refinitiv,MorganStanleyResearch,MorganStanleyInstitutionalEquitiesDivision.TheprobabilitiesofourBulBase,andBearcasescenariosplayingoutwereestimatedwithimpliedvolatilitydatafromtheoptionsmarketasof24Jan2025.Allfiguresareapproximaterisk-neutralprobabilitiesofthestockreachingbeyondthescenariopriceineiththree-months’orone-years’time.View explanationofOptionsProbabilitiesmethodologyhere$183.60$235.00(+28.00%)Prob(>235.00)~18.7%$130.00(-29.19%)Prob(<130.00)~14.6%$175.00(-4.68%)Prob(>175.00)~53.9%JAN'24JUL'24JAN'25JAN'26080160240320USDEQUAL-WEIGHTTHESISBULLCASEBASECASEBEARCASE
  7. M UpdateMorgan Stanley Research7Drivers20242025e2026e2027eCloud Services and License SupportYoY Growth (%)11.512.716.014.9Total Revenue YoY Growth (%)6.08.911.811.6Operating Margin % (%)43.543.543.644.7Earnings Per Share YoY Growth (%)8.68.711.615.14/5BEST24 MonthHorizon3/5MOST3 MonthHorizonAdditionalsharerepurchasesAccretiveacquisitions0-10%APAC, ex Japan, MainlandChina and India0-10%India0-10%Japan0-10%MEA0-10%UK10-20%Europe ex UK10-20%Latin America50-60%North AmericaSource:MorganStanleyResearchEstimateView explanationofregionalhierarchieshereSource:Refinitiv,FactSet,MorganStanleyResearch;1thehighestfavoredQuintileand5istheleastfavoredQuintileInst. Owners, % Active56.6%HF Sector Long/Short Ratio2.1xHF Sector Net Exposure23.5%Refinitiv;MSPBContent.IncludescertainhedgefuexposuresheldwithMSPB.Informationmaybeinconsistentwithormaynotreflectbroadermarktrends.Long/ShortRatio=LongExposure/Shortexposure.Sector%ofTotalNetExposure=(Foraparticularsector:LongExposure-ShortExposure)/(Acrossallsectors:LongExposure–ShortExposure).FasterthanexpectedOCIcapacityrampsStrongeradoptionofADBofferingdrivesgrowthandmarginsAcceleratedadoptionofFusionAppsacrosstheinstalledbaseDisruptivetechnologiesinthedatamanagementmarketRapidmigrationtowardsSaaS-basedsubscriptionapplicationmodelweighsStrongcompetitionfromothersecular CloudapplicationvendorsCernerheadwindpersistslongerthanexpectedMeanMorgan Stanley EstimatesSource:Refinitiv,MorganStanleyResearFY May 2025eSales /Revenue($,mm)57,11958,081EBITDA($,mm)28,75832,430Net income($,mm)17,24221,557EPS($)6.006.44RiskReward–OracleCorporation(ORCL.N)KEYEARNINGSINPUTSINVESTMENTDRIVERSGLOBALREVENUEEXPOSUREMSALPHAMODELSRISKSTOPT/RATINGRISKS TO UPSIDERISKS TO DOWNSIDEOWNERSHIPPOSITIONINGMSESTIMATESVS.CONSENSUS57,67657,70631,34730,48817,36817,7826.056.16
  8. M Update8Risk Reward Reference links 1. View explanation of Options Probabilities methodology - Options_Probabilities_Exhibit_Link.pdf 2. View descriptions of Risk Rewards Themes - RR_Themes_Exhibit_Link.pdf 3. View explanation of regional hierarchies - GEG_Exhibit_Link.pdf 4. View explanation of Theme/Exposure methodology - ESG_Sustainable_Solutions_External_Link.pdf 5. View explanation of HERS methodology - ESG_HERS_External_Link.pdf
  9. M UpdateMorgan Stanley Research9Disclosure SectionThe information and opinions in Morgan Stanley Research were prepared by Morgan Stanley & Co. LLC, and/or Morgan Stanley C.T.V.M. S.A., and/or Morgan Stanley Mexico, Casa de Bolsa, S.A. de C.V., and/or Morgan Stanley Canada Limited. As used in this disclosure section, "Morgan Stanley" includes Morgan Stanley & Co. LLC, Morgan Stanley C.T.V.M. S.A., Morgan Stanley Mexico, Casa de Bolsa, S.A. de C.V., Morgan Stanley Canada Limited and their affiliates as necessary.For important disclosures, stock price charts and equity rating histories regarding companies that are the subject of this report, please see the Morgan Stanley Research Disclosure Website at www.morganstanley.com/researchdisclosures, or contact your investment representative or Morgan Stanley Research at 1585 Broadway, (Attention: Research Management), New York, NY, 10036 USA.For valuation methodology and risks associated with any recommendation, rating or price target referenced in this research report, please contact the Client Support Team as follows: US/Canada +1 800 303-2495; Hong Kong +852 2848-5999; Latin America +1 718 754-5444 (U.S.); London +44 (0)20-7425-8169; Singapore +65 6834-6860; Sydney +61 (0)2-9770-1505; Tokyo +81 (0)3-6836-9000. Alternatively you may contact your investment representative or Morgan Stanley Research at 1585 Broadway, (Attention: Research Management), New York, NY 10036 USA.Analyst CertificationThe following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Josh Baer, CFA; Keith Weiss, CFA..Global Research Conflict Management PolicyMorgan Stanley Research has been published in accordance with our conflict management policy, which is available at www.morganstanley.com/institutional/research/conflictpolicies. A Portuguese version of the policy can be found at www.morganstanley.com.brImportant Regulatory Disclosures on Subject CompaniesThe analyst or strategist (or a household member) identified below owns the following securities (or related derivatives): Theodor J Thun - Microsoft(common or preferred stock), Snowflake Inc.(common or preferred stock), Twilio Inc(common or preferred stock).As of December 31, 2024, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in Morgan Stanley Research: Adobe Inc., Akamai Technologies, Inc., Appian Corp, Asana Inc, Atlassian Corporation PLC, Autodesk, BILL Holdings Inc, Blackline Inc, Box Inc, C3.ai, CCC Intelligent Solutions Holdings Inc, Chegg Inc, Cloudflare Inc, Coursera, Inc., CrowdStrike Holdings Inc, CyberArk Software Ltd, Datadog, Inc., DigitalOcean Holdings Inc, DocuSign Inc, Elastic NV, Fastly Inc., Five9 Inc, Fortinet Inc., Freshworks Inc, GitLab Inc, GoDaddy Inc, HashiCorp, Intuit, Klaviyo, Inc, LegalZoom.com Inc, Liveramp Holdings Inc, Matterport Inc, Microsoft, MongoDB Inc, NICE Ltd., Okta, Inc., OneStream Inc, PagerDuty, Inc., Palantir Technologies Inc., Palo Alto Networks Inc, Qualys Inc, Rapid7 Inc, RingCentral Inc, Sabre Corp, Salesforce, Inc., Samsara Inc, ServiceNow Inc, Shopify Inc, Snowflake Inc., Sprinklr Inc, Sprout Social Inc, Tenable Holdings Inc, Toast, Inc., Twilio Inc, UiPath Inc, Varonis Systems, Inc., Vertex Inc., Wix.Com Ltd, Workday Inc, Zeta Global Holdings Corp, ZoomInfo Technologies Inc.Within the last 12 months, Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of BILL Holdings Inc, Box Inc, CCC Intelligent Solutions Holdings Inc, Datadog, Inc., Five9 Inc, Jamf Holding Corp, OneStream Inc, ServiceTitan Inc, Varonis Systems, Inc., Vertex Inc., Zeta Global Holdings Corp.Within the last 12 months, Morgan Stanley has received compensation for investment banking services from Akamai Technologies, Inc., Autodesk, BILL Holdings Inc, Box Inc, CCC Intelligent Solutions Holdings Inc, Cloudflare Inc, CyberArk Software Ltd, Datadog, Inc., Five9 Inc, GoDaddy Inc, Intuit, Jamf Holding Corp, Microsoft, OneStream Inc, Qualys Inc, Sabre Corp, Salesforce, Inc., Secureworks Corp, ServiceTitan Inc, Varonis Systems, Inc., Vertex Inc., Zeta Global Holdings Corp.In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Adobe Inc., Akamai Technologies, Inc., Amplitude Inc., Appian Corp, Asana Inc, Atlassian Corporation PLC, Autodesk, BigCommerce Holdings, Inc., BILL Holdings Inc, Blackline Inc, Box Inc, C3.ai, CCC Intelligent Solutions Holdings Inc, Check Point Software Technologies Ltd., Chegg Inc, Cloudflare Inc, Confluent, Inc., Couchbase, Inc., Coursera, Inc., CrowdStrike Holdings Inc, CyberArk Software Ltd, Datadog, Inc., DigitalOcean Holdings Inc, Docebo Inc., DocuSign Inc, Dynatrace Inc, Elastic NV, Fastly Inc., Five9 Inc, Fortinet Inc., Freshworks Inc, Gen Digital Inc., GitLab Inc, GoDaddy Inc, HashiCorp, HubSpot, Inc., Intuit, Jamf Holding Corp, JFrog Ltd., Klaviyo, Inc, LegalZoom.com Inc, Lightspeed POS Inc., Liveramp Holdings Inc, Microsoft, MongoDB Inc, NICE Ltd., Okta, Inc., OneStream Inc, Oracle Corporation, PagerDuty, Inc., Palantir Technologies Inc., Palo Alto Networks Inc, Qualys Inc, Rapid7 Inc, RingCentral Inc, Sabre Corp, Salesforce, Inc., Samsara Inc, Secureworks Corp, Semrush Holdings Inc -A, SentinelOne, Inc., ServiceNow Inc, ServiceTitan Inc, Shopify Inc, Snowflake Inc., Solarwinds Corp, Sprinklr Inc, Sprout Social Inc, Tenable Holdings Inc, Toast, Inc., Twilio Inc, Udemy Inc, UiPath Inc, Varonis Systems, Inc., Vertex Inc., Wix.Com Ltd, Workday Inc, Zeta Global Holdings Corp, Zoom Video Communications Inc, Zscaler Inc.Within the last 12 months, Morgan Stanley has received compensation for products and services other than investment banking services from 8x8 Inc, Adobe Inc., Akamai Technologies, Inc., Asana Inc, Atlassian Corporation PLC, Autodesk, Box Inc, CCC Intelligent Solutions Holdings Inc, Check Point Software Technologies Ltd., Cloudflare Inc, Confluent, Inc., DigitalOcean Holdings Inc, DocuSign Inc, Dynatrace Inc, Five9 Inc, Fortinet Inc., Freshworks Inc, Gen Digital Inc., Intuit, Jamf Holding Corp, LegalZoom.com Inc, Microsoft, NICE Ltd., OneStream Inc, Oracle Corporation, Palantir Technologies Inc., Palo Alto Networks Inc, Qualys Inc, RingCentral Inc, Sabre Corp, Salesforce, Inc., ServiceTitan Inc, Snowflake Inc., Solarwinds Corp, Tenable Holdings Inc, Toast, Inc., Udemy Inc, UiPath Inc, Wix.Com Ltd, Workday Inc, Zeta Global Holdings Corp, Zoom Video Communications Inc, Zscaler Inc.Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with, the following company: Adobe Inc., Akamai Technologies, Inc., Amplitude Inc., Appian Corp, Asana Inc, Atlassian Corporation PLC, Autodesk, BigCommerce Holdings, Inc., BILL Holdings Inc, Blackline Inc, Box Inc, C3.ai, CCC Intelligent Solutions Holdings Inc, Check Point Software Technologies Ltd., Chegg Inc, Cloudflare Inc, Confluent, Inc., Couchbase, Inc., Coursera, Inc., CrowdStrike Holdings Inc, CyberArk Software Ltd, Datadog, Inc., DigitalOcean Holdings Inc, Docebo Inc., DocuSign Inc, Dynatrace Inc, Elastic NV, Fastly Inc., Five9 Inc, Fortinet Inc., Freshworks Inc, Gen Digital Inc., GitLab Inc, GoDaddy Inc, HashiCorp, HubSpot, Inc., Intuit, Jamf Holding Corp, JFrog Ltd., Klaviyo, Inc, LegalZoom.com Inc, Lightspeed POS Inc., Liveramp Holdings Inc, Microsoft, MongoDB Inc, NICE Ltd., Okta, Inc., OneStream Inc, Oracle Corporation, PagerDuty, Inc., Palantir Technologies Inc., Palo Alto Networks Inc, Qualys Inc, Rapid7 Inc, RingCentral Inc, Sabre Corp, Salesforce, Inc., Samsara Inc, Secureworks Corp, Semrush Holdings Inc -A, SentinelOne, Inc., ServiceNow Inc, ServiceTitan Inc, Shopify Inc, Snowflake Inc., Solarwinds Corp, Sprinklr Inc, Sprout Social Inc, Tenable Holdings Inc, Toast, Inc., Twilio Inc, Udemy Inc, UiPath Inc, Varonis Systems, Inc., Vertex Inc., Wix.Com Ltd, Workday Inc, Zeta Global Holdings Corp, Zoom Video Communications Inc, Zscaler Inc.Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following company: 8x8 Inc, Adobe Inc., Akamai Technologies, Inc., Asana Inc, Atlassian Corporation PLC, Autodesk, BigCommerce Holdings, Inc., Blackline Inc, Box Inc, CCC Intelligent Solutions Holdings Inc, Check Point Software Technologies Ltd., Chegg Inc, Cloudflare Inc, Confluent, Inc., CyberArk Software Ltd, Datadog, Inc., DigitalOcean Holdings Inc, DocuSign Inc, Dynatrace Inc, Five9 Inc, Fortinet Inc., Freshworks Inc, Gen Digital Inc., GoDaddy Inc, HubSpot, Inc., Intuit, Jamf Holding Corp, LegalZoom.com Inc, Microsoft, MongoDB Inc, NICE Ltd., OneStream Inc, Oracle Corporation, PagerDuty, Inc., Palantir Technologies Inc., Palo Alto Networks Inc, Qualys Inc, RingCentral Inc, Sabre Corp, Salesforce, Inc., ServiceNow Inc, ServiceTitan Inc, Shopify Inc, Snowflake Inc., Solarwinds Corp, Tenable Holdings Inc, Toast, Inc., Twilio Inc, Udemy Inc, UiPath Inc, Varonis Systems, Inc., Wix.Com Ltd, Workday Inc, Zeta Global Holdings Corp, Zoom Video Communications Inc, Zscaler Inc.
  10. M Update10An employee, director or consultant of Morgan Stanley is a director of Elastic NV, Tenable Holdings Inc. This person is not a research analyst or a member of a research analyst's household.Morgan Stanley & Co. LLC makes a market in the securities of 8x8 Inc, Adobe Inc., Akamai Technologies, Inc., Amplitude Inc., Appian Corp, Asana Inc, Atlassian Corporation PLC, Autodesk, BigCommerce Holdings, Inc., Blackline Inc, Box Inc, C3.ai, CCC Intelligent Solutions Holdings Inc, Check Point Software Technologies Ltd., Chegg Inc, Confluent, Inc., Couchbase, Inc., Coursera, Inc., CyberArk Software Ltd, Datadog, Inc., DigitalOcean Holdings Inc, Docebo Inc., DocuSign Inc, Domo Inc, Dynatrace Inc, E2open Parent Holdings Inc, Elastic NV, Fastly Inc., Five9 Inc, Fortinet Inc., Freshworks Inc, Gen Digital Inc., GoDaddy Inc, HashiCorp, Intuit, Jamf Holding Corp, JFrog Ltd., Karooooo Ltd, Klaviyo, Inc, LegalZoom.com Inc, Liveramp Holdings Inc, Microsoft, OneStream Inc, Oracle Corporation, PagerDuty, Inc., Palo Alto Networks Inc, Qualys Inc, Rapid7 Inc, RingCentral Inc, Sabre Corp, Salesforce, Inc., Secureworks Corp, Semrush Holdings Inc -A, ServiceNow Inc, ServiceTitan Inc, Shopify Inc, Solarwinds Corp, Sprinklr Inc, Sprout Social Inc, Tenable Holdings Inc, Udemy Inc, Varonis Systems, Inc., Vertex Inc., Wix.Com Ltd, Workday Inc, Zeta Global Holdings Corp, Zoom Video Communications Inc, ZoomInfo Technologies Inc, Zscaler Inc.The equity research analysts or strategists principally responsible for the preparation of Morgan Stanley Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues. Equity Research analysts' or strategists' compensation is not linked to investment banking or capital markets transactions performed by Morgan Stanley or the profitability or revenues of particular trading desks.Morgan Stanley and its affiliates do business that relates to companies/instruments covered in Morgan Stanley Research, including market making, providing liquidity, fund management, commercial banking, extension of credit, investment services and investment banking. Morgan Stanley sells to and buys from customers the securities/instruments of companies covered in Morgan Stanley Research on a principal basis. Morgan Stanley may have a position in the debt of the Company or instruments discussed in this report. Morgan Stanley trades or may trade as principal in the debt securities (or in related derivatives) that are the subject of the debt research report.Certain disclosures listed above are also for compliance with applicable regulations in non-US jurisdictions.STOCK RATINGSMorgan Stanley uses a relative rating system using terms such as Overweight, Equal-weight, Not-Rated or Underweight (see definitions below). Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold and sell. Investors should carefully read the definitions of all ratings used in Morgan Stanley Research. In addition, since Morgan Stanley Research contains more complete information concerning the analyst's views, investors should carefully read Morgan Stanley Research, in its entirety, and not infer the contents from the rating alone. In any case, ratings (or research) should not be used or relied upon as investment advice. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations.Global Stock Ratings Distribution(as of December 31, 2024)The Stock Ratings described below apply to Morgan Stanley's Fundamental Equity Research and do not apply to Debt Research produced by the Firm.For disclosure purposes only (in accordance with FINRA requirements), we include the category headings of Buy, Hold, and Sell alongside our ratings of Overweight, Equal-weight, Not-Rated and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold, and sell but represent recommended relative weightings (see definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy recommendation; we correspond Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively.Coverage UniverseInvestment Banking Clients (IBC)Other Material Investment Services Clients (MISC)Stock Rating CategoryCount% of TotalCount% of Total IBC% of Rating CategoryCount% of Total Other MISCOverweight/Buy146339%36345%25%66939%Equal-weight/Hold170345%36946%22%81048%Not-Rated/Hold50%00%0%20%Underweight/Sell59616%749%12%22213%Total3,7678061703Data include common stock and ADRs currently assigned ratings. Investment Banking Clients are companies from whom Morgan Stanley received investment banking compensation in the last 12 months. Due to rounding off of decimals, the percentages provided in the "% of total" column may not add up to exactly 100 percent.Analyst Stock RatingsOverweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.Not-Rated (NR). Currently the analyst does not have adequate conviction about the stock's total return relative to the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.Underweight (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months.Analyst Industry ViewsAttractive (A): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be attractive vs. the relevant broad market benchmark, as indicated below.In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be in line with the relevant broad market benchmark, as indicated below.Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant broad market benchmark, as indicated below.
  11. M UpdateMorgan Stanley Research11Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index or MSCI Latin America Index; Europe - MSCI Europe; Japan - TOPIX; Asia - relevant MSCI country index or MSCI sub-regional index or MSCI AC Asia Pacific ex Japan Index.Stock Price, Price Target and Rating History (See Rating Definitions)
  12. M Update12Important Disclosures for Morgan Stanley Smith Barney LLC CustomersImportant disclosures regarding the relationship between the companies that are the subject of Morgan Stanley Research and Morgan Stanley Smith Barney LLC or Morgan Stanley or any of their affiliates, are available on the Morgan Stanley Wealth Management disclosure website at www.morganstanley.com/online/researchdisclosures. For Morgan Stanley specific disclosures, you may refer to www.morganstanley.com/researchdisclosures.Each Morgan Stanley research report is reviewed and approved on behalf of Morgan Stanley Smith Barney LLC. This review and approval is conducted by the same person who reviews the research report on behalf of Morgan Stanley. This could create a conflict of interest.Other Important DisclosuresA member of Research who had or could have had access to the research prior to completion owns securities (or related derivatives) in the Atlassian Corporation PLC, Microsoft, Workday Inc. This person is not a research analyst or a member of research analyst's household.Morgan Stanley Research policy is to update research reports as and when the Research Analyst and Research Management deem appropriate, based on developments with the issuer, the sector, or the market that may have a material impact on the research views or opinions stated therein. In addition, certain Research publications are intended to be updated on a regular periodic basis (weekly/monthly/quarterly/annual) and will ordinarily be updated with that frequency, unless the Research Analyst and Research Management determine that a different publication schedule is appropriate based on current conditions.Morgan Stanley is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute, advice within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.Morgan Stanley produces an equity research product called a "Tactical Idea." Views contained in a "Tactical Idea" on a particular stock may be contrary to the recommendations or views expressed in research on the same stock. This may be the result of differing time horizons, methodologies, market events, or other factors. For all research available on a particular stock, please contact your sales representative or go to Matrix at http://www.morganstanley.com/matrix.Morgan Stanley Research is provided to our clients through our proprietary research portal on Matrix and also distributed electronically by Morgan Stanley to clients. Certain, but not all, Morgan Stanley Research products are also made available to clients through third-party vendors or redistributed to clients through alternate electronic means as a convenience. For access to all available Morgan Stanley Research, please contact your sales representative or go to Matrix at http://www.morganstanley.com/matrix.Any access and/or use of Morgan Stanley Research is subject to Morgan Stanley's Terms of Use (http://www.morganstanley.com/terms.html). By accessing and/or using Morgan Stanley Research, you are indicating that you have read and agree to be bound by our Terms of Use (http://www.morganstanley.com/terms.html). In addition you consent to Morgan Stanley processing your personal data and using cookies in accordance with our Privacy Policy and our Global Cookies Policy (http://www.morganstanley.com/privacy_pledge.html), including for the purposes of setting your preferences and to collect readership data so that we can deliver better and more personalized service and products to you. To find out more information about how Morgan Stanley processes personal data, how we use cookies and how to reject cookies see our Privacy Policy and our Global Cookies Policy (http://www.morganstanley.com/privacy_pledge.html).If you do not agree to our Terms of Use and/or if you do not wish to provide your consent to Morgan Stanley processing your personal data or using cookies please do not access our research.Morgan Stanley Research does not provide individually tailored investment advice. Morgan Stanley Research has been prepared without regard to the circumstances and objectives of those who receive it. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser.
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