A slate of overweight-rated tech stocks are worth buying ahead of earnings, Morgan Stanley said. CNBC Pro combed through the firm’s research to find its top picks heading into quarterly results. They include Fortinet, Microsoft, Apple and Atlassian. Microsoft Morgan Stanley analyst Keith Weiss is sticking with the tech giant ahead of earnings. Indeed, Microsoft shares are up nearly 14% in 2024, but the firm said the stock is too attractive to ignore at current levels. “Investor sentiment has turned more negative as a ‘wall of worry’ around Gross Margins, Capex, GenAI monetization and the OpenAI relationship [builds],” Weiss wrote. The analyst said he remains bullish on the company’s cloud computing service Azure, and he reminded investors that Microsoft artificial intelligence tailwinds are tremendous. “Net, we expect to see modest upside in F1Q outperformance, but see the larger lever for stock outperformance being greater investor confidence in the F2H Azure acceleration,” he added. The company reports quarterly results on Oct. 30. Atlassian Weiss also said that shares of the software developer remain “compelling.” Atlassian’s shares are down more than 20% in 2024, but the firm deems it a top pick. Growth concerns have plagued the stock recently, but Weiss said that these worries are overdone. “We view a path back to 20%+ growth as supported by an expanding product portfolio, increased cross-sell/upsell with marketing re-focus, and sustained pricing power,” he wrote. Further, the firm’s survey checks show a “generally stable demand environment for TEAM, with partners largely meeting or exceeding expectations,” Weiss said. The firm called Atlassian a “unique software asset” poised for margin expansion, adding that investors should continue to buy the dip. Atlassian is scheduled to report quarterly results on Oct. 31. Apple The firm is also standing by its top pick Apple ahead of quarterly earnings on Oct. 31, despite reports of mixed iPhone 16 demand. “While we are yet to see any iPhone build cuts, our below-consensus Dec Q forecasts reflect conservatism amidst mixed iPhone data points,” analyst Erik Woodring wrote. Still, the analyst said investors should buy the stock heading into the quarterly report. “We expect Apple to post a strong Sept Q top- and bottom-line beat,” he added. Woodring acknowledged the setup might be choppy in the near term, but he said the earnings results are not likely to sway shareholders either way. “Near-term dynamics are unlikely to change bulls’ or bears’ views on AAPL or Apple Intelligence, so we think any stock underperformance will be short lived,” he said. Apple shares are up 20% in 2024. Microsoft “Investor sentiment has turned more negative as a ‘wall of worry’ around Gross Margins, Capex, GenAI monetization and the OpenAI relationship build. … Net, we expect to see modest upside in F1Q outperformance, but see the larger lever for stock outperformance being greater investor confidence in the F2H Azure acceleration.” Apple “While we are yet to see any iPhone build cuts, our below-consensus Dec Q forecasts reflect conservatism amidst mixed iPhone data points. … We expect Apple to post a strong Sept Q top- and bottom-line beat. … Near-term dynamics are unlikely to change bulls’ or bears’ views on AAPL or Apple Intelligence, so we think any stock underperformance will be short lived.” Fortinet “Top Pick: FTNT – Strong Upside from Refresh Cycle Plus Upsell into Large Installed Base. … Nearer term, our CQ3 checks suggest stable demand and no signs of major refresh, so we would expect billings to come roughly in line with consensus. However, looking ahead, stronger Q4 budget flush and easy comps through 1H of next year should drive accelerating topline into stronger refresh activity starting 2H’25.” Atlassian “… We view a path back to 20%+ growth as supported by an expanding product portfolio, increased cross-sell/ upsell with marketing re-focus & sustained pricing power. … With shares trading at 26x EV/CY26 FCF, we view an attractive risk-reward setup for a unique software asset poised for sustained 20% growth with margin expansion. … In addition, checks ahead of our preview point to a generally stable demand environment for TEAM, with partners largely meeting or exceeding expectations….”
