JPMorgan: Software sector overly bearish; list of 8 high-confidence targets released

TechFlow Deep Tide report says, according to Chao Xiang Research, Morgan Stanley’s July 21 software industry report says the software sector has lagged the Nasdaq by 40% over the past two years and lagged the S&P 500 by 30%. The market’s concerns about AI disruption have been overpriced; Morgan Stanley maintains an “attractive” rating for the software industry.

The report introduces a dual-dimension assessment framework of “moat + journey,” screening eight high-confidence overweight picks: Microsoft, Palo Alto Networks, CrowdStrike, Shopify, Cloudflare, ServiceNow, Datadog, and Snowflake. It also downgrades Adobe and Workday to underweight.

Morgan Stanley notes that the core value of AI is concentrated in the workflow layer. The models themselves are only underlying tools; proprietary data, permission control, and business process logic have more scarce value. Microsoft’s moat and growth journey rank first in the industry: Azure growth is constrained by limited capacity supply, while end-user Copilot deployment intention continues to accelerate. Palo Alto Networks and CrowdStrike benefit fully from the expansion of AI security and the trend toward industry platform integration. Snowflake and Datadog continue to deliver on the AI infrastructure upside. Adobe and Workday’s pace of AI monetization implementation is slower, and the market is waiting with relatively higher costs.