Apple, Alphabet Lead Morgan Stanley's Buy List, AI & Buybacks Key

Key Takeaway

• Morgan Stanley highlights Apple, Spotify, Alphabet, and Microsoft as strong buys post-earnings, citing significant growth potential.
• Alphabet and Microsoft praised for AI advancements; Alphabet's stock target raised to $195, Microsoft expected 16% EPS CAGR through FY29.
• Apple announces largest-ever $110 billion buyback with earnings beat; Spotify reports strong earnings, underscoring market strength.

Tech Stocks Upside

Morgan Stanley has identified significant growth potential in the technology sector, spotlighting companies like Spotify, Apple, Alphabet, and Microsoft for their strong positions following recent quarterly earnings. These firms are highlighted for their overweight ratings, reflecting Morgan Stanley's confidence in their market performance and future prospects. The optimism is grounded in updated forecasts and recent financial results, indicating a robust outlook for these tech giants.

AI and Market Leadership

Alphabet and Microsoft have been specifically praised for their advancements and strategic positioning in artificial intelligence (AI). Alphabet's first-quarter revenue and EBIT outperformance underscore its core growth durability and successful cost base reengineering, with YouTube growth and AI advancements noted as key drivers. Microsoft's leadership in AI is seen as a pivotal factor for its future growth, with the AI innovation cycle just beginning. Both companies are expected to benefit from their AI initiatives, with Alphabet's stock price target raised to $195 from $165 and Microsoft anticipated to sustain a 16% EPS CAGR through FY29.

Record Buybacks and Earnings Surprises

Apple's announcement of the largest-ever stock buyback in U.S. history at $110 billion, coupled with its second-quarter earnings beat, has fueled bullish sentiment among analysts. The company's guidance for the June quarter, all-time high Services revenue and gross margin record, and hints at upcoming generative AI announcements have further bolstered confidence. Similarly, Spotify's blowout earnings report, highlighted by strong top and bottom lines and gross margin leverage, underscores its market strength and growth potential. These financial maneuvers and performance metrics underscore the companies' robust financial health and strategic foresight.

Analyst Endorsements and Future Outlook

Wall Street's reaction to these developments has been overwhelmingly positive, with several analysts upgrading their price targets and outlooks for the highlighted companies. For instance, Apple's stock saw a significant jump following its earnings announcement and buyback news, with analysts raising price targets and emphasizing the potential for generative AI features to drive future growth. Spotify's and Microsoft's market positions have also been reinforced by analyst endorsements, reflecting a broad consensus on the strong future prospects of these tech giants.

Street Views

• Brian Nowak, Morgan Stanley (Bullish on Alphabet):

  "The internet search giant is 'firing on all cylinders'... 'GOOGL’s 1Q revenue and EBIT beat demonstrate the durability of core growth and management’s early success durably reengineering the cost base.'... 'We believe GOOGL’s AI positioning is improving, and that investors are beginning to recognize this.'"

• Keith Weiss, Morgan Stanley (Bullish on Microsoft):

  "'Winning in AI,'... 'With the AI innovation cycle just starting, we see plenty of runway for growth.'... Bottom-line, even in our conservative base case, Microsoft stands positioned to sustain a 16% EPS CAGR through FY29, a durability of EPS growth still not reflected in the shares trading at 28X CY25 GAAP EPS today."

• Benjamin Swinburne, Morgan Stanley (Bullish on Spotify):

  "Shares of the music streaming giant are too attractive to ignore following the company’s blowout earnings report in late April,... 'Back in black,' he exclaimed. ... The results & outlook reinforce our bullish view - a) that music is under-priced and at the beginning of a repricing cycle, b) that Spotify has a long runway for growth, a superior product & untapped pricing power..."

• Morgan Stanley Analyst for Apple (Bullish on Apple):

  "'AAPL guided to an above-Street June Q, alleviated concerns about China iPhone, reached an all-time Services rev & GM [gross margin] record, authorized its largest incremental buyback in history,& hinted at Gen AI announcements to come in weeks. It's hard not to be more bullish after that.... We see buybacks ramping to $23-25b/quarter after Apple disclosed its largest incremental buyback authorization in history.'"