What happened

Shares of Confluent (CFLT -2.49%) were trading higher on Wednesday, jumping as much as 9.9% in early trading. As of 10:56 a.m. ET, the shares were still up 5%.

While the broader market move provided additional momentum, the cloud-based data streaming company was on the receiving end of an analyst upgrade, helping fuel the stock's advance.

So what

Morgan Stanley analyst Sanjit Singh upgraded Confluent stock to overweight (buy), while simultaneously raising the stock's price target to $30, up from $29. The new price target represents potential gains for investors of 28% compared to Tuesday's close. 

The investment bank completed its AlphaWise Cloud Optimization Survey, which indicated that 73% of respondents are actively engaged in cloud optimization initiatives -- Confluent's bread and butter. This, combined with the stock's attractive valuation, makes it a compelling opportunity for investors.

Singh's bullish thesis is further fueled by the company's "major pivot" to profitability and the large growth opportunity that remains, helping backstop the upgrade.

Now what

The available evidence suggests the analyst is on to something. In the fourth quarter, Confluent generated revenue of $169 million, up 41% year over year, a particularly respectable increase given the prevailing macroeconomic headwinds. Additionally, the company's remaining performance obligation -- a forward-looking indicator -- climbed 48% to $741 million, which suggests that its growth spurt is far from over. 

Furthermore, the company delivered a non-GAAP (generally accepted accounting principles) adjusted loss per share of $0.09, which was a significant improvement compared to a per-share loss of $0.19 in the prior-year quarter. So while Confluent remains unprofitable, it's quickly moving in the right direction.

While some investors might balk at paying 7 times next year's sales when a reasonable price-to-sales ratio is generally between 1 and 2, Confluent's consistent strong growth in the face of economic headwinds shows it's worthy of a premium valuation.

Furthermore, Confluent generated revenue of $586 million last year, a drop in the bucket compared to its total addressable market, which management currently estimates at nearly $60 billion and climbing to $100 billion by 2025. This shows Confluent has a long, prosperous runway ahead.