Morgan Stanley slashes targets on 3 software stocks after earnings
Morgan Stanley cut price targets on Elastic, UiPath and PagerDuty after their earnings, citing uneven AI impact across software. For Elastic, it kept Equal Weight and lowered the target to $73 from $80; Q4 remaining performance obligations rose 20% to $1.2B and RPO 27% to $1.98B. For UiPath, target fell to $15 from $17; FY2027 ARR guidance was $2.058B–$2.063B. PagerDuty target was cut to $7 from $10.
How this was made
The 30-second read
Why it matters
The key trading signal is the combination of (1) price target reductions and (2) explicit “AI momentum not yet in ARR” framing, which can drive near-term re-rating even when some operational metrics look better.
Market read
Analyst target cuts across three AI-adjacent software stocks highlight a market-wide preference for AI-to-ARR proof, not just AI adoption metrics.
What to watch
Elastic’s RPO/remaining performance obligations and UiPath’s net retention/customer mix improvements may eventually pull through to ARR; short-term target cuts may overreact to near-term guidance conservatism.
Background
Morgan Stanley re-assessed three software names after their earnings, focusing on whether AI adoption is converting into durable revenue/ARR growth.
Ticker impact
Morgan Stanley cut Elastic’s price target to $73 from $80 after earnings, citing strong bookings but FY2027 growth reacceleration assumptions.
Near-term pressure likely if investors focus on the lower target and “show-me” AI-to-revenue linkage.
The article explicitly states the target cut and the rationale tied to guidance/ARR translation, which typically drives incremental repricing.
Morgan Stanley lowered UiPath’s price target to $15 from $17, saying AI momentum is improving but not yet showing up in recurring revenue growth.
Moderate downside risk/underperformance risk until ARR guidance or retention metrics accelerate.
Target reduction is directly tied to lack of recurring revenue acceleration, a concrete driver for valuation.
Morgan Stanley maintained PagerDuty at Equal Weight and set a $7 price target vs. $10, citing flat ARR, retention softness, and seat compression.
Higher probability of continued multiple compression if ARR remains flat and retention trends don’t improve.
The article provides specific negative operating/retention metrics and a lower price target, supporting a bearish near-term bias.
Market effects
Reinforces a software/AI valuation framework: bookings and AI deal activity are insufficient without evidence in deployed workloads and recognized/recurring revenue.
Primarily US-listed software sentiment; could spill into broader US software multiples via read-across on AI-to-ARR conversion.
Global AI software investors may tighten scrutiny on ARR conversion metrics, not just AI feature adoption or deal counts.
Counterpoint
Bookings and large AI deal growth could lead ARR acceleration later than the market expects; “show-me” may be timing-related rather than fundamental deterioration.
Key entities
- analyst_firmMorgan Stanley
Updated outlook and cut price targets on Elastic, UiPath, and PagerDuty after earnings.
- companyElastic N.V.
Bookings and AI customer metrics improved, but Morgan Stanley cut the price target due to FY2027 growth reacceleration assumptions.
- companyUiPath
AI included in top deals and expansion deals grew, but recurring revenue acceleration remains the concern.
- companyPagerDuty
Profitability improved, yet ARR stability/retention and seat compression issues keep valuation capped.
