Morgan Stanley has identified five European software stocks as preferred picks for the second half of 2025, citing improving fundamentals, valuation support and limited downside risk after a period of sector underperformance.
The bank maintained overweight ratings on SAP, IONOS, Informa, Sage Group and Amadeus, projecting upside ranging from 14% to 21% based on its European coverage. The upgrade follows a reassessment of the sector’s prospects, with the bank arguing that concerns over an AI-driven "SaaSpocalypse" may be overstated as open-weight AI models reduce costs and expand enterprise adoption among legacy software providers.
SAP remains the top conviction among the five, described as offering the clearest combination of competitive moat, visible growth and AI relevance. The company’s cloud revenue is projected to reach €25.8–26.2 billion in constant currency for fiscal 2026, with non-IFRS operating profit of €11.8–12.2 billion and free cash flow near €10 billion. SAP’s total revenue growth is expected to accelerate by 2027, while its stock ranks as the 14th most under-owned among European funds relative to benchmark weights.
IONOS received an upgrade to overweight, with Morgan Stanley highlighting its position as the leading European web hosting and cloud infrastructure provider. The bank forecasts constant currency revenue growth of about 8% for fiscal 2026, with adjusted EBITDA of roughly €530 million at a 37–38% margin. Medium-term targets include total revenue compound annual growth of around 10%, cloud solutions growth of 20% and EBITDA margins approaching 40%, supported by the European Commission’s Tech Sovereignty Package, which identifies €420 billion in investment needs across semiconductors, data centres, cloud and AI.
Informa carries the highest implied upside among the five, with Morgan Stanley citing its status as the global leader in live business-to-business events. The bank projects group underlying revenue growth of 6% for fiscal 2026, with B2B events growth exceeding 7% and adjusted earnings per share growing at a double-digit underlying pace. Long-term guidance calls for annual underlying revenue growth of at least 5% through fiscal 2028.
Sage Group is positioned as the leading provider of accounting and payroll software for small and medium-sized enterprises, with organic revenue growth expected to exceed 9% in fiscal 2026. Operating margins are forecast to trend higher in fiscal 2026 and beyond, reflecting continued monetisation of AI capabilities.
Amadeus, the category leader in travel IT and air distribution, is viewed as having a strong competitive position despite near-term volatility in travel demand. Morgan Stanley projects constant currency revenue growth in the mid-to-high single digits for fiscal 2026, with adjusted EBIT margins stable versus fiscal 2025’s 29.1%. Free cash flow is expected to range between €1.35 billion and €1.45 billion, while targets for 2026–2028 include high single-digit annual revenue growth, low double-digit adjusted diluted EPS growth and high single-digit free cash flow growth.
The five stocks collectively reflect a mix of mission-critical enterprise software, cloud infrastructure, event services, SME-focused accounting tools and travel technology, with Morgan Stanley emphasizing their resilience, growth visibility and alignment with AI-driven enterprise trends.
