11:39 AM EST, 12/18/2024 (MT Newswires) -- Twilio ( TWLO ) and Nice (NICE) are viewed as a communication software players with growth potential and improved performance despite the sector underperforming in much of 2024 due to concerns about small- and medium-sized business demand and artificial intelligence, Morgan Stanley said in a note Wednesday.

The investment firm said that communication software outperformed small- and mid-cap software in 2024 due to free cash flow support and depressed valuations but noted that performance was bifurcated. Companies having positive estimate revisions like Twilio ( TWLO ) and Zoom (ZM) did better while those with lowered estimates such as Five9 ( FIVN ) and 8x8 (EGHT) struggled, Morgan Stanley said.

The firm said Nice (NICE) remains its top pick in the sector as the company has strong fundamentals and an attractive valuation with a $26 billion opportunity in the contact center as a service market as AI adoption grows.

"We are seeing signs of greenshoots in small- and medium-sized business demand as we exit 2024, particularly in unified communications as a service," the firm said.

Morgan Stanley boosted its price target on Nice to $246 from $240, on Zoom to $96 from $86, on Twilio ( TWLO ) to $115 from $77, on Five9 ( FIVN ) to $46 from $40 and for 8x8 to $2.6 from $2.

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