In a note dated Monday, the firm stated that hyperscalers — a term for tech companies investing heavily in data centers — might gain from a shift away from semiconductor stocks as the AI cycle evolves.
While major players like Alphabet and Amazon have invested billions to enhance their AI infrastructure, significantly boosting semiconductor stock prices, concrete evidence that AI products can deliver returns justifying these expenditures is still lacking.
However, Morgan Stanley noted a potential for “more capex discipline in the near-term,” with hyperscaler stocks having already navigated their phase of underperformance.
In June, shares of Alphabet, Amazon, Meta Platforms, and others faced significant selling pressure, even as the Philadelphia SE Semiconductor index rose by 11% last month.
In contrast, the chip index has dropped over 11% in the past two weeks, while the Roundhill Magnificent Seven ETF — used to track the largest tech companies on Wall Street — has begun to recover some of its losses.
Morgan Stanley also pointed out that reduced expectations for US Federal Reserve rate hikes and a decline in crude oil prices are contributing to the shift away from the previously hot chip sector.
According to the brokerage, consumer discretionary goods, transport, and biotechnology stocks stand to benefit from this rotation.
