Morgan Stanley's picks to surprise on earnings rest of the reporting season

Morgan Stanley forecasts significant earnings surprises from over two dozen companies, including Snowflake, Pinterest, and Cisco Systems, based on its proprietary 'Earnings Surprise Composite' scores and a 'quantamental' approach. Snowflake is highlighted for AI-driven customer growth and recent sales milestones, while Cisco is expected to benefit from strong enterprise spending on AI infrastructure. Pinterest's GPU investments are also anticipated to drive improved engagement and monetization. This positive outlook aligns with broader market trends, as approximately 82% of S&P 500 companies have already beaten earnings estimates this season.

Analysis

Against the backdrop of a strong earnings season, where approximately 82% of S&P 500 companies have surpassed estimates, Morgan Stanley has identified several stocks poised for positive earnings surprises. Using a 'quantamental' approach that merges quantitative metrics with fundamental analysis, the firm highlights Snowflake (SNOW), Cisco Systems (CSCO), and Pinterest (PINS) as key opportunities. Snowflake leads the list with the highest 'Earnings Surprise Composite' score of 0.97, supported by strong stock performance (+33% YTD) and fundamental drivers including AI-integrated services that pushed quarterly sales beyond $1 billion for the first time. Cisco is expected to benefit from robust enterprise spending on AI infrastructure modernization, with analysts seeing potential for further valuation expansion as its current gap of 5.2x still has room to grow relative to its 4.6x historical average. Pinterest, recently upgraded to Overweight, is noted for its GPU-enabled investments, which are expected to drive 'under-appreciated acceleration and earnings power' through improved user engagement and monetization in the second half of the year.

Key Decisions for Investors

• Given the strong positive catalysts identified by Morgan Stanley, investors could consider positions in Snowflake, Pinterest, and Cisco ahead of their upcoming earnings reports, which are scheduled for August 27, this Thursday, and August 13, respectively.
• Monitor Snowflake's report for confirmation of continued AI-driven customer growth and Pinterest's results for tangible evidence of accelerated monetization, as these are the core theses underpinning their bullish outlooks.
• For Cisco, investors should focus on forward-looking guidance regarding enterprise AI spending, as a strong outlook is the key justification for a potential valuation re-rating beyond its current premium.
• Be aware that the significant year-to-date rallies in Snowflake (+33%) and Pinterest (+34%) have raised market expectations, creating a potential risk of a pullback if earnings or guidance fail to significantly beat consensus.