Morgan Stanley: AI chips cool down, cloud giants may face rotation

BlockBeats reported, July 7 — Morgan Stanley strategist Mike Wilson's team believes that the recent pullback in semiconductor stocks may signal a bumpier phase for U.S. equities, and the leading direction within AI trades could also shift.

The bank noted that chip stocks had significantly outperformed the broader market, while large cloud platform companies have lagged relatively. As the market reassesses AI capital expenditure returns, capital may flow from parts of the semiconductor supply chain to hyperscalers like Microsoft, Amazon, Alphabet, and Meta.

Wilson's team's reasoning is that AI infrastructure buildout ultimately depends on sustained investment by cloud giants. If investors start to believe these companies can maintain profit expansion while controlling spending, the valuation recovery space for cloud giants may reopen.

Morgan Stanley also cautioned that the market is no longer driven by a single AI theme. Previously pressured sectors such as consumer discretionary and biotech may also see allocation demand amid expectations of falling interest rates and reduced oil price pressure.