Investing.com - According to Morgan Stanley, artificial intelligence is fundamentally changing the demand for software infrastructure. Providers of data and cloud platforms in particular could benefit from this to an above-average extent.

Following an industry conference, analyst Sanjit Singh was optimistic for parts of the sector. He left the event "with a better feeling for the growth prospects" in the infrastructure software sector, he wrote in a study published on Friday. Companies with large platforms in particular would have good cards - their systems are too complex to simply recreate with the help of AI programming agents.

At the conference, the managers of leading providers convincingly explained why their business models are hardly threatened by possible displacement by AI. The decisive factors are "the size and complexity of their infrastructure platforms" and the high overall costs for customers to develop comparable systems themselves, Morgan Stanley said.

According to the analysts, the increasing use of multiple cloud providers also speaks in favor of the established platforms. Their multicloud architecture provides the "availability and resilience" required for business-critical applications.

Investors should therefore focus on software companies "that provide things that AI agents will consume in large quantities", says Singh. Solutions for data infrastructure and so-called observability software, which companies use to monitor and analyze their systems, are particularly in demand.

Morgan Stanley names several well-known names from the infrastructure segment as the most promising beneficiaries. These include Snowflake (NYSE:SNOW), Datadog (NASDAQ:DDOG), Akamai (NASDAQ:AKAM) and Jfrog (NASDAQ:FROG). Snowflake in particular impressed at the conference. The management showed a "strong sense of urgency" in dealing with the changes brought about by AI, the analysts wrote.

While investors are still discussing the long-term consequences of a world with AI agents, Morgan Stanley already sees clear trends. "The outperformers in 2026 will be those companies that are linked to the most important IT priorities in the current environment," says Singh. These include, above all, accelerated cloud migrations, new applications and continued high software development activity.

After the conference, Morgan Stanley therefore named $SNOW (-0.45%) , $AKAM (+2.09%) , $DDOG (+1.71%) and $FROG (+3.82%) as the most important investment ideas in the sector. This is followed by the database specialist MongoDB (NASDAQ:MDB).

$AMZN (+0.11%)
$NVDA (+1.17%)
$ALAB (+10.63%)
$NDAQ (+1.76%)
$APPN (+2.17%)
$FROG (+3.82%)
$PLTR (+1.5%)
$SNOW (-0.45%)
$MDB (+1.28%)
$AKAM (+2.09%)
$DDOG (+1.71%)
$PD (+1.83%)

In my search for small and mid-cap stocks that could benefit from the AI megatrend, the company $FROG (+3.82%)
caught my eye.

I myself am currently (yet) but would like to briefly introduce this exciting company to you.

It may also be of interest to your watchlist. 👀

Industry sector: DevOps / AI / Security

Market capitalization: approx. USD 5 billion

📍 What does JFrog do?

JFrog provides a platform for automated software delivery - from development to operation. It manages so-called artifacts (i.e. software packages, containers, AI models) and automates the entire delivery process. Companies use JFrog to deliver software faster, more securely and more consistently - whether in the cloud, on-premises or at the edge.

The goal: software should be delivered as smoothly as data - which is why JFrog calls its concept "Liquid Software".

🧠 How does JFrog use artificial intelligence?

JFrog itself is not a classic "AI company" - but AI is central to two things:

Security & Automation:

JFrog uses AI-powered analysis to automatically detect and assess vulnerabilities in software - even in complex open source stacks.

Deployment of AI models:

Many customers use JFrog to deploy their own AI models automatically and securely securely into production. This makes JFrog the infrastructure behind modern AI.

📈 Growth & momentum

• Q2 2025 revenue: USD 127.2 million → +23% YoY
• Cloud revenue: +45 %
• Customer loyalty (net dollar retention): 118%
• 61 major customers with sales of over USD 1 million - +45% year-on-year

JFrog is operationally profitable with a gross margin of 83% and a free cash flow margin of 28

The balance sheet is debt-free, with over USD 600 million in cash reserves - a stable basis for further growth.

📊 Valuation & market sentiment

The share is valued at a forward P/E ratio of approx. 61 and a sales multiple of around 9.

This is ambitiousbut is well underpinned by growth, margins and market position. The share price rose significantly after the last quarterly figures - there is technical momentum.

📍 Opportunities & risks

Opportunities:

- Important building block in DevOps and AI infrastructures

- High cloud share with strong growth

- High customer loyalty & strong cash flow

Risks:

- Valuation challenging

- Competition from GitLab, GitHub, AWS & Co.

👉 Conclusion

JFrog is not a short-term AI hype, but a strategically positioned company with real applications in the AI and software world.

Anyone looking to invest in the infrastructure behind modern software development - with a focus on automation, security and scalability - will find an exciting mid-cap with substance here.

📈 Current chart (as at August 8, 2025)

Brief summary (weekly chart)

• Trend: Higher lows/highs since 2022 → medium-term upward trend.
• Key resistance: USD 45-47 (multiple tops).
• Dynamic supports:
• ~37 USD ≈ rising 50-week SMA
• 29-31 USD ≈ 200-week SMA + volume base

Possible entry zones

Break-out buy: Weekly close > 47 USD → Target 55-60 USD, stop < 42 USD.

Pullback buy: Setback to the zone 35-38 USD (50-W-SMA) with bullish reaction.

USD 29-31 as "last-defense" support from the bottom formation.

ℹ️ Of course only a brief technical assessment, not investment advice.