Nice (NICE) is aggressively focusing on artificial intelligence to drive growth, but needs to successfully accelerate revenue growth and improve operating leverage for a re-rating of its stock, Morgan Stanley said in a Tuesday note.

Cloud revenue growth for the company is projected to speed up to 17% to 19% from around 12% to 13% recently by fiscal 2028. This growth is buoyed by AI-driven income, which is expected to surpass $1 billion in the same period, Morgan Stanley analysts said.

The company is making incremental investments of about $160 million in fiscal 2026, primarily in AI delivery, innovation, and go-to-market efforts, the analysts said. The investments, while essential for long-term growth, are expected to compress operating margins and free cash flow temporarily, the analysts said.

Nice's recent Analyst Day presented a credible plan focused on AI-driven revenue growth, the analysts said.

However, the size and scale of the near-term investments needed to achieve this growth surprised investors concerned with free cash flow generation, and they may take a cautious approach until Nice demonstrates clearer execution on its growth plans and shows recovery in free cash flow after completing its investment cycle, according to the note.

Morgan Stanley maintained the company's stock rating at overweight and reduced the price target to $160 from $193.

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