Morgan Stanley Says Q1 SaaS Earnings Won't Re-Rate Sector at 2.6x Sales
Morgan Stanley warns that Q1 software earnings are unlikely to re-rate the SaaS sector, which trades at 2.6x EV/NTM sales, requiring clear acceleration and positive estimate revisions. The firm favors Samsara and Box (30-40% pricing uplift for Enterprise Advanced) while deferring Salesforce catalysts to H2 and doubting Workday bookings guidance.
1. SaaS Sector Valuation Outlook
Morgan Stanley forecasts that Q1 results are unlikely to shift valuations for the SaaS sector, which currently trades at 2.6 times enterprise value to next-twelve-month sales. The firm argues that modest beats and constructive commentary alone won’t counter headwinds from AI competition, margin pressure and terminal value risks.
2. Preferred Software Picks
Morgan Stanley identifies Samsara and Box as its top picks heading into Q1 earnings. For Box, improving net revenue retention and its Enterprise Advanced product cycle driving a 30%–40% pricing uplift versus Enterprise Plus underpin expectations for durable double-digit growth.
3. Salesforce and Workday Analysis
The firm views AI-driven consumption at Salesforce as an early-stage catalyst, with a stronger case emerging in the second half of the year. Conversely, it expresses skepticism over Workday’s remaining performance obligation guidance, citing booking weaknesses in the prior quarter.