Peripherals
Recent weakness in U.S. semiconductor stocks signals that investors may be rotating into AI hyperscalers and other sectors as the market rally broadens, according to Morgan Stanley.
In a note to clients, the brokerage said companies investing heavily in AI infrastructure—including major cloud providers or hyperscalers—could benefit as investors shift away from semiconductor stocks after their strong run over the past year.
The brokerage also expects sectors such as consumer discretionary, transportation and biotechnology to gain from the rotation.
Semiconductor stocks have been among Wall Street's biggest beneficiaries of the AI boom, driven by billions of dollars in data centre investments from technology companies including Alphabet, Amazon and Meta Platforms.
However, Morgan Stanley said the AI investment cycle may be entering a new phase.
The brokerage expects "more capex discipline in the near term," suggesting hyperscalers could benefit after a period of relative underperformance.
While major technology companies continue to invest aggressively in AI infrastructure, investors are increasingly looking for evidence that those investments can generate sustainable financial returns.
Market performance over the past month reflects that changing sentiment.
Alphabet, Amazon, Meta and other large technology companies came under selling pressure in June, while the Philadelphia Semiconductor Index (SOX) gained 11% during the month. Over the past two weeks, however, the trend has reversed, with the semiconductor index falling more than 11% as the Roundhill Magnificent Seven ETF, which tracks the largest U.S. technology companies, recovered some of its earlier losses.
Morgan Stanley said the sector rotation is also being supported by easing expectations for further U.S. Federal Reserve interest rate hikes and declining crude oil prices, both of which have improved investor appetite for sectors beyond semiconductors.
According to the brokerage, the shift could broaden market leadership beyond AI chipmakers, benefiting companies in consumer discretionary, transportation and biotechnology as investors diversify their portfolios.
In a note to clients, the brokerage said companies investing heavily in AI infrastructure—including major cloud providers or hyperscalers—could benefit as investors shift away from semiconductor stocks after their strong run over the past year.
The brokerage also expects sectors such as consumer discretionary, transportation and biotechnology to gain from the rotation.
Semiconductor stocks have been among Wall Street's biggest beneficiaries of the AI boom, driven by billions of dollars in data centre investments from technology companies including Alphabet, Amazon and Meta Platforms.
However, Morgan Stanley said the AI investment cycle may be entering a new phase.
The brokerage expects "more capex discipline in the near term," suggesting hyperscalers could benefit after a period of relative underperformance.
While major technology companies continue to invest aggressively in AI infrastructure, investors are increasingly looking for evidence that those investments can generate sustainable financial returns.
Market performance over the past month reflects that changing sentiment.
Alphabet, Amazon, Meta and other large technology companies came under selling pressure in June, while the Philadelphia Semiconductor Index (SOX) gained 11% during the month. Over the past two weeks, however, the trend has reversed, with the semiconductor index falling more than 11% as the Roundhill Magnificent Seven ETF, which tracks the largest U.S. technology companies, recovered some of its earlier losses.
Morgan Stanley said the sector rotation is also being supported by easing expectations for further U.S. Federal Reserve interest rate hikes and declining crude oil prices, both of which have improved investor appetite for sectors beyond semiconductors.
According to the brokerage, the shift could broaden market leadership beyond AI chipmakers, benefiting companies in consumer discretionary, transportation and biotechnology as investors diversify their portfolios.
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