Spotify (NYSE:SPOT) Gains Momentum as Morgan Stanley Names Stock Top Sector Pick

Spotify's stock (NYSE:SPOT) is currently trading at $694, a gain of 2.73% early in the session, as Morgan Stanley name SPOT a top pick in the sector.

Morgan Stanley has reiterated its positive stance on Spotify, naming it a top pick in the media and entertainment sector. Analyst Manan Gosalia increased the firm's price target to $850 from $700 in July 2025, signaling a strong vote of confidence in Spotify’s growth trajectory.

The firm highlighted the company’s potential in advertising revenue, video content, and artificial intelligence applications, emphasizing its competitive edge through technology-driven personalization. This revised outlook reflects increased confidence in Spotify's growth prospects.

However, Spotify's stock experienced a temporary setback following the announcement that founder Daniel Ek would step down as CEO on January 1, 2026, transitioning to the role of executive chairman. The appointment of co-CEOs Gustav Söderström and Alex Norström led to a share price decline of over 5% as markets digested the leadership transition. Despite this initial reaction, Ek's continued involvement in strategic initiatives, particularly in untapped streaming markets and artificial intelligence, aims to reassure markets of the company’s long-term vision.

Spotify is actively expanding its content offerings and revenue streams. A strategic partnership with Netflix, announced on October 14, 2025, will bring select video podcasts to Netflix's streaming platform in early 2026. This collaboration aims to diversify Netflix's content and broaden Spotify's audience reach, leveraging the growing popularity of video podcasts and creating new opportunities for content creators.

The company is also making strides in responsible AI integration within the music industry. Spotify unveiled a major AI initiative three days ago, in partnership with Sony, Universal, and Warner. This “artist-first” plan focuses on protecting artists' rights, ensuring fair compensation, and enhancing artist-fan interaction. The initiative includes the development of a generative AI research lab to create ethical tools that credit and compensate artists transparently, aligning with a broader industry push for responsible AI usage.

To further boost revenue, Spotify implemented price hikes in Germany, Austria, and Switzerland in August, ranging from 8% to 22%, impacting approximately 25% of its global premium subscriber base. These increases are expected to enhance gross margins, particularly as non-music content like audiobooks and podcasts reduce royalty obligations. Markets anticipate similar price adjustments in major markets like the U.S. by year-end, potentially leading to a significant financial impact in 2026.