Morgan Stanley analysts say upcoming Q1 earnings from software companies are unlikely to trigger a broad re-rating of the SaaS sector, even if results beat expectations.
Analyst Josh Baer noted that the market's focus on AI disruption to SaaS has pressured narratives and multiples for some time, as investors price in competition, business model, margin, and terminal value risks.
The bank said while fundamental strength could be rewarded, Q1 does not look to be the catalyst quarter for SaaS. Modest beats and constructive management commentary will not be enough to drive a re-rating.
Clear evidence of acceleration and positive estimate revisions are needed to counter the AI bear case. The group trades at just 2.6 times enterprise value to next-twelve-months sales.
Among individual names, Morgan Stanley prefers Samsara and Box heading into earnings. For Box, the bank cites leading growth indicators already in the teens, improving net revenue retention, and the Enterprise Advanced product cycle driving 30-40% pricing uplift vs Enterprise Plus.
On Salesforce, Morgan Stanley says AI and Agentforce consumption remains early, pointing to the second half as a better catalyst timing. On Workday, the bank lacks conviction in current remaining performance obligation guidance due to weakness in bookings last quarter.
