Morgan Stanley has upgraded five European software stocks to Overweight ratings in its second-half outlook, arguing that concerns over an AI-driven downturn in the sector may be overstated.
The five names—SAP, IONOS, Informa, Sage Group and Amadeus—represent a mix of enterprise software, cloud infrastructure, events, SME-focused accounting and travel IT, with implied upside ranging from 14% to 21% based on analyst targets. The bank’s equity strategy team also notes that SAP ranks as the 14th most under-owned stock among European funds relative to benchmark weights.
SAP remains the firm’s top pick, described as having the clearest combination of economic moat, visible growth and AI relevance. The company’s FY26 guidance includes cloud revenue of €25.8 billion to €26.2 billion in constant currency, non-IFRS operating profit of €11.8 billion to €12.2 billion and free cash flow of approximately €10 billion. Total revenue growth is expected to accelerate in 2027.
IONOS was upgraded to Overweight, with analysts citing its position as the leading European web hosting and cloud infrastructure provider. FY26 guidance projects constant currency revenue growth of around 8%, adjusted EBITDA of about €530 million at a 37-38% margin and cloud solutions segment growth of 10-15% in constant currency. Medium-term targets include total revenue CAGR of roughly 10%, cloud solutions CAGR near 20% and adjusted EBITDA margin approaching 40%. The bank ties IONOS’s growth to 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 names, with analysts highlighting its status as the clear global leader in live B2B events and limited exposure to AI disruption. FY26 guidance includes underlying revenue growth of 6% at the group level, B2B events underlying growth above 7% and underlying adjusted EPS growth in the double digits. The company guided to 5% or more annual underlying revenue growth through FY28.
Sage Group is positioned as the leading provider of accounting and payroll software for SMEs, with organic revenue growth of more than 9% and AI monetisation efforts cited as a key driver. FY26 guidance calls for organic total revenue growth above 9% and operating margins expected to trend upward.
Amadeus, the category leader in travel IT and air distribution, was also upgraded to Overweight despite near-term travel volatility. FY26 guidance projects constant currency revenue growth in the mid-to-high single digits, stable adjusted EBIT margin relative to FY25’s 29.1% and free cash flow of €1.35 billion to €1.45 billion. For 2026-2028, the company targets annual constant currency revenue growth in the high single digits, adjusted diluted EPS growth CAGR in the low double digits and free cash flow growth CAGR in the high single digits. Amadeus is among the top 35 most well-held stocks in global and international long-only funds.
