Samsara (IOT) will continue to grow due to its emerging product cycles, "favorable" market conditions, low market penetration rate, and strong management, Morgan Stanley said in a note Wednesday.

Morgan Stanley said Samsara's Q2 results showed strong and consistent growth, driven by a solid core business and new products that are ramping up quickly. The firm added that with an annual recurring revenue growth of 37% year-over-year, Samsara is the fastest-growing company in its software sector coverage.

The brokerage said it is raising its price target for Samsara to reflect a slightly higher valuation multiple to account for the more sustainable growth prospects, with the updated valuation based on projections for the full year 2026.

"While we continue to like the story longer-term, we remain equalweight given a balanced risk/reward heading into Q3 earnings with shares posting a >47% year-to-date outperformance against the median software stock," according to the note.

Morgan Stanley added that Software as a service, or SaaS, valuations have rebounded, and there is more potential for growth. The overall sentiment around Software and generative artificial intelligence, or GenAI, is improving, with investors showing more interest in underappreciated SaaS stories.

Morgan Stanley raised its price target on Samsara to $52 from $40.

Price: 51.56, Change: -0.67, Percent Change: -1.28