MORGAN STANLEY: Only 3 software companies will sustain 'hyper growth' - and their valuations could soar

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MORGAN STANLEY: Only 3 software companies will sustain 'hyper growth' - and their valuations could soar

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Morgan Stanley has high hopes for MongoDB, which went public in October 2017.

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  • Software saw a lot of 'hyper growth' through 2017, but that trend will likely slow down through 2019, according to Morgan Stanley.
  • Out of the 48 companies followed by the firm, only three are likely to sustain 30% growth through 2019.
  • Those three - ServiceNow, MongoDB and Yext - will likely see their valuations soar on that growth.


Software companies were high performers in 2017, with at least 18 companies growing more than 30% over the course of the year. But Morgan Stanley thinks that trend is on its way out.

In a report published Monday, Morgan Stanley projected that just three of the top software companies will sustain 30% growth over the next two years: Service Now, MongoDB, and Yext. And those three companies could see their valuation surge on that growth.

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"Hyper growth stories in software are becoming more scarce, which could force premium valuations for companies able to sustain these high rates of topline growth," analyst Keith Weiss wrote in the report.

Beyond those three, Morgan Stanley identified five other companies that could also hit 30% growth if they outperform the firm's expectations: Workday, Splunk, Zendesk, Atlassian, and Proofpoint.

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Nonetheless, Morgan Stanley's top picks in software aren't young, high-growth companies. Weiss and his team are expecting big things from old standbys at Microsoft (MSFT), Salesforce (CRM), and GoDaddy (GDDY).

The firm thinks Microsoft could hit a market cap of $1 trillion thanks to its growing cloud business, while Salesforce and GoDaddy have the opportunity to significantly grow their margins, according to the report.

Morgan Stanley Software April 2018

Morgan Stanley Research and Company Data

Get the latest Microsoft stock price here.

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