Morgan Stanley shuffles rating on software

Investing.com -- Morgan Stanley analysts revised ratings and price target on software companies, as brokerage see GenAI offering a large opportunity but also posing risks. Atlassian Corp Plc (NASDAQ: TEAM) emerged as a top pick for 2025, while Datadog (NASDAQ: DDOG) and Confluent faced rating cuts due to near-term challenges.

“We see larger consolidators best positioned to accrue the gains and navigate the risks,” analysts wrote.

The brokerage raised target on ‘overweight’ rated Atlassian to $315 from $259 as analyst noted Atlassian's potential for sustained growth and operational efficiency led to a price target upgrade to $315.

Analysts cited its 20% top-line growth forecast, strong free cash flow trajectory, and opportunities in expanding markets and product portfolios. Despite a 35% stock surge over four months, optimism around upward revisions keeps Atlassian a standout pick among large-cap software firms.

Datadog was downgraded to Equal-weight as analysts balanced its long-term growth in observability and cloud security against short-term risks. With shares near the price target of $143, concerns over 2025 revenue guidance and potential spending slowdowns among AI-native customers tempered expectations. Analysts await catalysts like improved software spending and an AI-driven product cycle to reignite momentum.

Confluent also saw a downgrade to Equal-weight, despite optimism in the data streaming market. Analysts highlighted challenges in driving Flink adoption and questioned 2025 revenue growth assumptions. The price target was slightly raised from $30 to $33, reflecting a cautious near-term outlook but long-term belief in the data streaming opportunity.

DigitalOcean was upgraded to Overweight with a $41 price target, supported by a strategic shift to cater to larger customers and attractive valuation metrics.

OneStream rating was raised to Overweight, as analysts identified growth tailwinds in its ERP supercycle and AI-driven products, positioning it for upward revisions.

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