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Investing.com -- Morgan Stanley has identified several standout performers in the U.S. software sector, highlighting companies that are showing resilience and growth potential in a competitive landscape.
Atlassian (TEAM), despite being down approximately 37% year-to-date against a broader market that’s up 18%, presents what Morgan Stanley calls "an attractive setup."
The firm believes investor concerns about generative AI’s impact on Atlassian’s business durability are overstated. Atlassian’s value proposition centers on managing the broader Software Development Lifecycle rather than individual developer productivity.
With a discounted valuation (20x EV/CY26 FCF), conservative consensus estimates, and strong business momentum, Morgan Stanley projects 20%+ top-line growth in the fiscal first quarter, potentially 2-3% above consensus.
They expect Atlassian to raise its fiscal year guidance to 18.5%-19% growth from the current 18%.
In recent developments, Atlassian Corporation announced it has completed its acquisition of The Browser Company and also plans to acquire DX, an engineering intelligence platform, for approximately $1 billion.
Additionally, Wells Fargo initiated coverage on the company with an Overweight rating, while Bernstein and Mizuho both reiterated Outperform ratings.
JFrog (FROG) is anticipated to post another "beat and raise" quarter amid an improving IT demand environment, according to Morgan Stanley.
Partner feedback indicates sequential improvement in performance with greater enthusiasm for 2026. Most partners reported above-expectation performance with growth generally in the mid-20% range.
The company’s core remains anchored in Artifactory and X-Ray products, with increasing contribution from Advanced Security.
Given sequential improvement in channel checks, building momentum, benefits from increasing software updates, and greater traction of security products, Morgan Stanley believes JFrog is positioned for sustained growth in its self-managed business and 40%+ year-over-year growth in cloud services.
JFrog announced that former Morgan Stanley CIO Sigal Zarmi will join its Board of Directors. The company also received positive analyst updates, with TD Cowen, Cantor Fitzgerald, and KeyBanc all raising their price targets on the stock.
DigitalOcean (DOCN): Morgan Stanley believes continued growth acceleration will drive DigitalOcean’s stock higher as bearish sentiment quiets.
The company has addressed concerns about convertible note refinancing, shown continued growth acceleration toward 2027 targets, built momentum with larger customers, and expanded its AI/ML platform.
The firm believes DigitalOcean can achieve 15-16% growth in the second half of 2025 and guide 2026 to match 2025 exit rates, which should be sufficient to push shares higher.
DigitalOcean received a price target increase from Canaccord Genuity, which cited signs of a business turnaround and raised revenue guidance in the company’s second-quarter results. The company also announced several product updates to its AI and cloud portfolio at its Deploy 25 London event.
Appian (APPN): Morgan Stanley expects sustained growth in Software-as-a-Service (SaaS) for Appian. Their checks suggest stable to improving growth in Q3, underpinned by solid public sector demand with core claims operations driving high transactional usage.
Product feedback indicates meaningful improvements in AI capabilities and user experience. The firm believes Appian can deliver 20-21% year-over-year cloud growth and approximately 17% year-over-year total revenue growth, outpacing current consensus expectations.
Appian Corporation reported second-quarter 2025 results that exceeded revenue expectations, though earnings per share missed forecasts. The company’s board also authorized a share repurchase program of up to $10 million.
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