Morgan Stanley pours cold water: chipmakers’ pricing power under pressure, AI capital expenditures begin to slow, and US stocks for semiconductors are “clearly overbought”

Morgan Stanley Wealth Management Chief Investment Officer Lisa Shalett said that, as more signs indicate chipmakers’ pricing power is being constrained, investors should stay cautious about chip stocks. She believes the market’s optimistic expectations for spending on AI may have already pushed related stocks to excessively high levels.

Shalett said in an interview on Friday:

“We’re seeing that the AI data center technology stack is being redesigned, with more lower-cost in-house chips being incorporated—chips that many hyperscalers are developing themselves.”

Shalett issued the above warning as SK hynix officially listed on Nasdaq on Friday, completing a $26.5 billion fundraising round, setting a record for the largest IPO capital raise by a foreign company in the United States. However, SK hynix has seen sharp volatility in the South Korean domestic market in recent days, with its share price down 26% from last month’s peak.

Shalett said:

“Overall, there is still plenty of money flowing into this trading theme.”

But she noted that the industry’s current developments are replaying a familiar pattern:

“When supply-chain bottlenecks arise, some companies—such as certain memory chip makers—use the opportunity to capture excess profits, and then engineers start looking for lower-cost alternatives.”

Earlier this week, Shalett pointed out in an investment report that the semiconductor sector shows signs of being “clearly overbought.” In the program, she added that multiple indicators, from the semiconductor ETF to the Philadelphia Semiconductor Index, back up this view.

Bloomberg-compiled data shows that since 2022, the Philadelphia Semiconductor Index’s price-to-earnings ratio (P/E) has grown by more than three times.

Shalett also mentioned that Meta Platforms’ recent shift in its AI strategy is another signal worth watching, suggesting that some tech giants may be starting to reassess capital expenditure plans totaling up to the thousands of billions of dollars.

In an interview this week, Meta CEO Mark Zuckerberg said he is considering whether renting out some of Meta’s AI infrastructure to external customers could create higher value.

In response, Shalett said:

“To some extent, this indicates that companies have started discussing the timing, pace, and return on investment of these investments, while also thinking about how to achieve monetization ahead of schedule.”

She concluded:

“I think we’re in the early innings of an AI capital expenditure growth rate slowdown.”

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