Morgan Stanley said the earnings momentum (growth engine) for semiconductor stocks has passed its peak and recommended trimming exposure to memory chip names including Samsung Electronics, SK hynix, and Micron.
According to the financial investment industry on the 7th, investment bank (IB) Morgan Stanley wrote in a report sent to clients the previous day that it believes "the narrow rally centered on semiconductors is wrapping up, and the market is entering a phase where leadership is gradually broadening."
The report cited news that Meta will sell surplus artificial intelligence (AI) computing externally as the reason for weaker semiconductor earnings. The report said, "We view Meta's announcement to sell surplus AI computing capacity externally as a sign that this shift is beginning," and assessed, "Because semiconductors ultimately depend on the AI investment of hyperscalers (large-scale data center corporations), if hyperscalers begin to moderate the pace of investment increases, earnings expectations for semiconductors could fall in tandem."
As leaders to replace semiconductor stocks, it pointed to hyperscalers. The report said, "The recent plunge in semiconductor stocks is likely an early sign that market leadership is rotating to other sectors," and wrote, "In the short term, we prefer to reduce semiconductor exposure and favor hyperscalers."
It also identified consumer goods, transportation, regional banks, and biotech as beneficiaries. Biotech is likely to benefit from falling interest rates and increased M&A, while consumer goods are expected to gain from a recovery in goods spending and improved earnings.
Earlier, Morgan Stanley issued its "Memory, Winter is Coming" report in Aug. 2021, when the semiconductor boom fueled by the COVID-19 special demand was at its peak. A subsequent semiconductor downcycle arrived, and as the prediction hit the mark, the influence of Morgan Stanley's report grew in the market.