Morgan Stanley's Q2 Earnings: Can Strong Results Defy the IT Spending Blues?

Corporate IT spending in 2025 has become a tale of two priorities: aggressive investments in AI and cloud infrastructure amid a broader tightening of budgets. For Morgan Stanley (NYSE: MS), whose Q2 earnings are set to reflect the health of global financial services and tech-driven banking, this contradiction poses a critical test. While Wall Street analysts expect EPS of $1.95—a 7.1% year-over-year increase—the reality of corporate IT budgets tells a murkier story. Let's unpack why Morgan Stanley's results could either underscore sector resilience or reveal vulnerabilities in the AI-driven tech spend narrative.

The Contradiction: High Expectations vs. Cautionary Spending

Wall Street's optimism hinges on Morgan Stanley's Q1 outperformance, where it delivered EPS of $2.60, a 16.59% beat over estimates. Analysts now project annual EPS of $9.00 for 2025, assuming the firm can sustain momentum in wealth management, investment banking, and its tech-enabled digital platforms. However, the backdrop of corporate IT spending reveals a disconnect. Despite AI budgets growing (83% of firms plan to increase in-house AI spending), overall IT growth has plummeted—from 5.3% in January to 3.4% in April. Large enterprises, Morgan Stanley's key clients, face even steeper declines (2.4% for Fortune 500 firms). CFOs are prioritizing security, foundational infrastructure, and SaaS over “experimental” AI projects—a shift that could crimp demand for the bank's tech advisory and cloud services.

AI and Cloud: A Double-Edged Sword

The paradox here is clear. While AI adoption is accelerating—especially in IT, telecom, and sectors like Microsoft, which is capturing 62% of Azure OpenAI deployments—the ROI remains elusive. Only 10% of enterprises report AI ROI exceeding 25%, and 27% see no tangible returns yet. For Morgan Stanley, this means two things:
1. Opportunity: The bank's $1.5 billion investment in cloud infrastructure and AI tools (e.g., its partnership with Microsoft on Azure) positions it to capitalize on clients' cloud migration and AI integration needs.
2. Risk: If CFOs continue to defer experimental AI projects, demand for Morgan Stanley's tech advisory services and digital solutions could soften, especially in sectors like finance and healthcare, which prioritize on-premises infrastructure for regulatory reasons.

Security Over Splurge: The New IT Spending Priority

The Morgan Stanley CIO survey underscores this shift. Security software now ranks as the most defensible IT category, with 72% of CIOs prioritizing it over cloud or AI in a downturn. This aligns with broader trends: cybersecurity spending is projected to hit $212 billion in 2025, up 15%, as firms grapple with compliance costs and rising cyber threats. For Morgan Stanley, this means its cybersecurity offerings (e.g., data governance tools for institutional clients) could act as a stabilizer—if not a growth driver—during periods of tech spending caution.

What's at Stake for Investors?

The earnings preview will test whether Morgan Stanley can navigate these crosscurrents. Key metrics to watch:
- Wealth Management Revenue: A barometer of affluent client spending, which remains resilient despite broader economic uncertainty.
- Tech Advisory and Digital Services Margins: If AI/cloud projects are being delayed, profit margins here could compress.
- Corporate Client Activity: A slowdown in IPOs or M&A (driven by CFOs' budget constraints) would hit investment banking fees.

Investment Takeaways

1. Underweight if IT Caution Deepens: If Q2 results show weakness in tech-driven revenue streams or client deal activity, it could signal a broader sector slowdown.
2. Overweight on a Strong Beat: A robust EPS print (beating the $1.95 estimate) and positive guidance on cloud/AI adoption could reassert Morgan Stanley's leadership in tech-enabled finance.
3. Monitor AI ROI Metrics: The market's patience with “build now, justify later” is waning. If Morgan Stanley's clients begin demanding clearer ROI from AI projects, it could reshape the bank's tech strategy—and stock valuation.

Final Thought

The IT spending paradox—investing in AI's future while cutting present-day budgets—will define Morgan Stanley's Q2 narrative. The bank's ability to balance these forces could determine not just its earnings trajectory but also its standing in a financial services landscape increasingly dependent on tech-driven innovation. Investors should watch closely: this quarter's results may be the first real stress test of whether the AI boom can sustain the hype—or if it's just another bubble waiting to pop.