Morgan Stanley says the recent sell-off in software stocks has produced a set of attractively priced opportunities among large incumbents that are positioned to participate in the generative AI cycle.
In a client note on Monday, analyst Keith Weiss argued that "peak uncertainty has severely impacted Software multiples," noting a roughly 33% decline since October 2025. He added that "~4.4X EV/Sales, the average software multiple is back into the range last seen during the peak uncertainty around Public Cloud."
Weiss told clients that investor expectations appear to underweight the ability of existing software vendors to capture value from AI adoption. The note states that "the bear case arguments around GenAI appear to give too little credence to the ability of incumbent software vendors to participate in this innovation cycle."
The bank identified nine companies it views as the most compelling opportunities following the valuation reset: Microsoft, Intuit, Salesforce, ServiceNow, Atlassian, Snowflake, Cloudflare, Shopify and Palo Alto Networks. The selection was grounded in a combination of robust product cycles, improving financial metrics and what Morgan Stanley described as discounted valuations.
The note singled out several company-specific points. Microsoft was described as "a clear participant in the most important innovation cycles." Intuit's valuation was labelled "very attractive." Salesforce's AI-related annual recurring revenue was reported to have grown 114% year-on-year. Shopify was characterised as "best positioned to accrue more than their fair share of an expanding online commerce pie."
On the broader market opportunity, Morgan Stanley estimates generative AI could add "~$400 billion to the broader Enterprise Software TAM by 2028." Weiss framed the issue succinctly: "Bottom line: the question is not whether Software will ultimately monetise in this innovation cycle, but rather who will participate."
The note presents these views as a valuation-driven investment case: software multiples have retracted materially and the analyst team believes that at least some large incumbents retain durable exposure to the structural upside from AI adoption.
Contextual summary
- The bank argues that a compression in software multiples has created buying possibilities among major incumbents tied to the AI transition.
- Key valuation and metric data cited include a roughly 33% pullback since October 2025 and an average multiple near ~4.4X EV/Sales.
- Morgan Stanley estimates generative AI could expand the enterprise software market by ~ $400 billion by 2028.