Tech stocks like Apple are table-pounding buys following earnings, Morgan Stanley says

Published Sat, May 4 20247:28 AM EDT

There's still plenty of room for upside in tech stocks, Morgan Stanley said earlier this week. The firm named a slew of companies it says are well positioned following their latest quarterly earnings reports. CNBC Pro combed through Morgan Stanley research to find the firm's favorite overweight-rated stocks based on the latest results and updated forecasts. They include: Spotify, Apple , Alphabet and Microsoft. Alphabet The internet search giant is "firing on all cylinders," according to the firm. Analyst Brian Nowak called the earnings report on April 25 "notably strong." "GOOGL's 1Q revenue and EBIT beat demonstrate the durability of core growth and management's early success durably reengineering the cost base," he wrote. In addition, YouTube growth is accelerating and advancements in artificial intelligence are becoming notable with more upside to come. "We believe GOOGL's AI positioning is improving, and that investors are beginning to recognize this," he said. The firm also raised the stock's price target to $195 per share from $165, or around 17% above where the stock traded on Friday. "There remains a clear set of catalysts over the coming months that can build further confidence in GOOGL's AI position and durability of long-term growth," Nowak said. Shares are up more than 19% this year. Microsoft "Winning in AI," analyst Keith Weiss said, following the tech giant's quarterly results . The company recently reported a solid top- and bottom-line beat to go along with robust guidance for its third-quarter leading Weiss to write that the best is yet to come for Microsoft. Shares are up 33% over the last 12 months with plenty more room to run. In particular, the "durability of EPS growth [is] still not reflected in the shares," he added. But it's the company's leadership position in AI that has the firm most excited about the stock. Morgan Stanley's recent survey checks show that AI has not yet had an impact on corporate IT budgets. It expects Microsoft is well positioned to take that market share as AI spending ramps up. "With the AI innovation cycle just starting, we see plenty of runway for growth," he said succintly. Spotify Shares of the music streaming giant are too attractive to ignore following the company's blowout earnings report in late April, according to the firm. Spotify reported a strong top line and bottom line shows the bull case is alive and well, analyst Benjamin Swinburne wrote. "The key upside surprise this quarter came from gross margins, where Spotify delivered leverage across music, podcasting, and other cost of revenues," he said. Swinburne said Spotify has a "a superior product and untapped pricing power" and that "these factors will translate into underappreciated earnings power." Further, the company has an advertising opportunity that's not getting enough attention from investors. Shares of the company are up 57% and Swinburne lifted his price target on the stock to $370 per share from $350. "Back in black," he exclaimed. Spotify "Back in Black.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, & c) that these factors will translate into underappreciated earnings power. ... The key upside surprise this quarter came from gross margins, where Spotify delivered leverage across music, podcasting, & other cost of revenues 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." 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." Alphabet "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. ... There remains a clear set of catalysts over the coming months that can build further confidence in GOOGL's AI position and durability of long-term growth."