AutoStore stock rating upgraded by Morgan Stanley on cycle trough

Morgan Stanley upgraded AutoStore Holdings Ltd (OL:AUTO) to Equalweight from Underweight, raising its price target to NOK8.00 from NOK5.00, citing Q2 results that indicate the automation cycle troughed in Q1 2025. Despite a 12% year-over-year revenue decline, AutoStore reported a surprising 56% quarter-over-quarter improvement driven by unexpected European demand offsetting North American weakness. This sequential recovery, which contrasts with prior concerns about the company's cyclical exposure and low recurring revenue, has led Morgan Stanley to view the risk to estimates as more balanced and align with consensus.

Analysis

Morgan Stanley has upgraded AutoStore Holdings Ltd. to Equalweight from Underweight and raised its price target to NOK8.00, signaling a significant shift in its outlook. This revision is based on Q2 results which suggest the cyclical downturn in the automation sector troughed in Q1 2025. While Q2 revenues declined 12% year-over-year, they surged by a notable 56% quarter-over-quarter, a figure that materially surpassed expectations. The sequential growth was driven by an unexpected recovery in European demand, which offset the anticipated weakness in North America caused by U.S. tariffs. Despite this positive inflection, the company's fundamental vulnerability to economic cycles remains a key consideration, as its business model includes very little recurring revenue (approximately 3%). The upgrade indicates that Morgan Stanley now perceives a more balanced risk-to-reward profile and has aligned its forward estimates with market consensus.

Key Decisions for Investors

• Given the upgrade and strong 56% quarter-over-quarter revenue growth, investors should re-evaluate AutoStore as evidence suggests the automation cycle may have bottomed, potentially signaling a favorable inflection point.
• Despite the positive sequential data, the Equalweight rating and 12% year-over-year revenue decline advise against overly aggressive positioning, as the company's high cyclicality and low recurring revenue base remain significant long-term risk factors.
• Monitor future earnings for continued strength in European demand and signs of stabilization in the North American market to validate the thesis that a sustainable recovery is underway.