Morgan Stanley said in a research note published on Aug. 6 that it is keeping Overweight ratings on Datadog, Snowflake and MongoDB, while warning that expectations risk is building across cloud infrastructure software ahead of earnings.
The bank said combined second-quarter growth at the three major cloud providers rose to 48% from 39% in the first quarter, extending a five-quarter acceleration streak. In Morgan Stanley’s view, AI-driven consumption is lifting demand for core infrastructure, creating a supportive spending backdrop for Datadog, Snowflake and MongoDB. At the same time, investor expectations have moved higher as well.
Cloud growth accelerated for a fifth straight quarter
The note said second-quarter combined growth across the three cloud vendors improved by 880 basis points from the prior quarter. Amazon Web Services grew 37%, its fastest rate in 18 quarters, and marked a fifth consecutive quarter of acceleration. Microsoft Azure grew 43%, with management again saying demand was running above available capacity. Google Cloud grew 82%. Morgan Stanley noted that TPU systems sales were included for the first time, but management said cloud growth still accelerated meaningfully even without that contribution.
Morgan Stanley pulled three main themes from the latest cloud earnings reports.
First, AI remains the central driver, and the spending mix is becoming more consumption-oriented. AWS said its AI annualized revenue run rate has moved above $25 billion and is growing at a triple-digit pace. Azure said adoption of AI-optimized databases used for AI agent memory and retrieval is accelerating. Google Cloud pointed to broad demand for token consumption as well as TPU and GPU infrastructure.
Second, momentum in migration and core infrastructure is strengthening. AWS said AI is now driving core consumption, with post-training workloads and agent tools running on CPU and core resources, while non-AI revenue growth has also accelerated to above 20%. Azure linked AI adoption with faster cloud migration.
Third, demand in data, analytics and databases remains firm. Azure’s PostgreSQL revenue grew about 55%, accelerating for a third straight quarter, and the company added the managed PostgreSQL product HorizonDB. Paid analytics product Fabric has more than 40,000 customers, up 60% year over year.
Morgan Stanley’s setup for DDOG, SNOW and MDB
Datadog: strong demand, but a full valuation
Morgan Stanley said Datadog’s core enterprise business could improve from growth of more than 20% in the first quarter, while spending from AI-native customers may also be accelerating. Based on investor conversations cited in the note, market expectations for Datadog’s second-quarter revenue growth are now in the 35% to 36% range. The report said a guide to modest deceleration in the second half would likely be needed to support the stock’s performance.
On valuation, Morgan Stanley said Datadog’s current share price implies roughly 69x fiscal 2028 free cash flow. The bank said the stock already reflects optimistic assumptions. It kept an Overweight rating and a $300 price target, based on 69x fiscal 2028 free cash flow per share of $4.65, rolled back by one year, implying about 19x 2027 price-to-sales.
Snowflake: AWS acceleration is a supportive signal
For Snowflake, Morgan Stanley said most of its consumption comes from AWS, making AWS acceleration a positive read-through for product revenue. The bank said AWS growth is being driven by both core infrastructure and AI, giving Snowflake a favorable consumption backdrop.
Morgan Stanley kept its Overweight rating on Snowflake with a $300 price target, based on about $4.2 billion in 2030 free cash flow valued at 39x and rolled back to 2027. That framework implies an assumed revenue compound annual growth rate of about 25%. The note added that upside could emerge if Snowflake proves out the network effects from data sharing and makes progress in penetrating transactional workloads.
MongoDB: no AI inflection this quarter, competition is rising
On MongoDB, Morgan Stanley said an AI inflection is unlikely to show up this quarter, though AI is already part of the discussion for 2026. Microsoft highlighted rapid adoption of AI-optimized databases including Cosmos DB and SQL, while Amazon said vector databases are a strength area within core infrastructure.
The bank also flagged heavier competition. Microsoft’s managed PostgreSQL revenue grew 55% and has now accelerated for three consecutive quarters. Morgan Stanley maintained its Overweight rating on MongoDB and set a $380 price target, based on about $1.1 billion in 2029 free cash flow valued at 37x, implying an assumed free cash flow growth rate of about 25%.
Expectations risk is becoming the key earnings issue
Morgan Stanley said cloud infrastructure software is at a delicate point. Faster growth at the cloud giants supports the demand case, and AI consumption is feeding into core infrastructure demand. But valuations for Datadog, Snowflake and MongoDB already reflect a large amount of optimism, which leaves the group exposed if reported results or forward guidance fail to clear elevated expectations.
The bank said Datadog has the clearest expectations gap. Market forecasts for second-quarter growth have already risen to 35% to 36%. If the company guides to only modest deceleration in the second half, rather than flat growth or renewed acceleration, the stock could face pressure.
For Snowflake, the issue is that the market is already looking for strong revenue growth, so any sign of softer consumption trends could be magnified. For MongoDB, the concern is rising competition, with accelerating PostgreSQL growth at Microsoft potentially affecting incremental customer wins.
Morgan Stanley said all three companies remain beneficiaries of long-term structural growth in cloud consumption. In the near term, though, market expectations have moved ahead of fundamentals. Going into earnings season, the question is no longer whether demand exists, but whether that demand is strong enough to justify current valuations.
Note on the source material
The original article said it was a summary and interpretation by Chaoxiang Research of a third-party sell-side research report from Morgan Stanley dated Aug. 6, 2026, combined with public market information. It also said the cited ratings, price targets, earnings forecasts and related judgments were the views of the brokerage analysts and represented only their institution’s position, not Chaoxiang Research’s, and did not constitute investment advice.
The original article also said market risks remain and investment decisions should be made independently, and that the piece should not be used as a basis for buying or selling any securities.