Morgan Stanley says these top stocks have more room to run ahead of earnings

Morgan Stanley remains constructive on several stocks heading into earnings, including S&P Global, Spotify, Warner Music Group, Starbucks and Datadog. The firm trimmed SPGI’s price target to $556 from $580 but still sees it as attractive, while Spotify is seen on track to exceed 300 million paid users and Warner Music’s target was raised to $38 from $37. Overall, the note points to solid earnings setups, improving fundamentals and favorable near-term skew across the named companies.

Analysis

This setup favors names where earnings are less about a single-quarter beat and more about validating a multi-quarter compounding story. The common thread is not just “good results,” but asymmetric rerating potential where investor positioning is still cautious relative to fundamentals: SPGI and DDOG look like the cleanest quality-growth setups, while SPOT and WMG have the highest beta to narrative expansion. The second-order implication is that capital could rotate from crowded AI infrastructure beneficiaries into “enabling software + recurring IP” if management commentary confirms durable pricing power and product velocity.

For SPGI, the underappreciated lever is capital returns layered on top of an already defensive earnings base. In a choppier macro, that combination tends to compress downside vol and support multiple stability, so even a muted report can be enough if guidance stays intact. DDOG is the cleaner tactical upside expression: when positioning is light after a pullback, a modest upward revision cycle can trigger forced de-risking in the short base and create a 1–2 week squeeze window.

SPOT and WMG are more narrative-sensitive and therefore more prone to gap risk, but also to rerating if management can frame AI as monetization-positive rather than rights-destructive. The market still seems to be pricing too much disruption and not enough distribution leverage; if that thesis holds, the upside could extend over months, not days. SBUX is the weakest of the group from a timing standpoint: near-term upside depends on traffic normalization lasting through the print, but the bear case only reasserts itself if consumer elasticity or margin drag shows up in commentary.

The contrarian read is that the upside here may be front-loaded into the prints, with less room for follow-through unless guidance raises the full-year bar. That makes post-earnings price action more important than headline beats: strong guidance with unchanged estimates should work, but any sign of “better quarter, softer second half” likely fades quickly. The best risk/reward is in names where the market is underowned and the catalyst can force estimate resets higher, rather than in names where the market already expects improvement.

Key Decisions for Investors

• Go long DDOG into earnings on a 1–2 week tactical horizon; use the recent pullback as entry and target a 2:1 upside/downside if checks confirm Q2/FY26 revisions. Exit quickly if management does not reaffirm a path to sustained ~30% growth.
• Add to SPGI pre-earnings for a 1–3 month hold; this is a lower-volatility quality compounder where capital returns and margin execution can support multiple expansion even on modest beats. Risk/reward skews favorably unless guidance implies macro-driven deceleration.
• Buy SPOT upside via calls or call spreads into the investor day/earnings window; structure around a catalyst-driven rerating rather than outright stock exposure. Best case is a post-event move if management can prove product iteration and monetization are both improving.
• Pair long WMG / short a lower-quality media or entertainment peer over the next 1–2 quarters; the trade is that ownership of scarce music IP gets re-rated while AI fear premia compress. Cover if the market starts pricing regulatory/label leverage issues instead of fundamental upside.
• Keep SBUX on a watchlist rather than chasing strength; initiate only if the print confirms sustained traffic gains and margin stabilization. Otherwise, the asymmetric risk is a fade if consumer momentum is less durable than management implies.