Morgan Stanley said the earnings momentum (growth engine) of semiconductor stocks has passed its peak and advised focusing on hyperscalers rather than memory chip-related stocks such as 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, "We judge that the narrow rally centered on semiconductors is wrapping up and the market is entering a phase where leadership is gradually broadening."
The report explained the downward shift in semiconductor earnings with the news that Meta will sell surplus artificial intelligence (AI) computing externally. The report said, "We see Meta's announcement to sell surplus AI computing capacity externally as an example showing that this change is beginning," and diagnosed, "Since semiconductors are ultimately an industry that depends on hyperscalers (extra-large data center corporations) for AI investment, if hyperscalers start to moderate the pace of investment increases, expectations for semiconductor earnings could decline as well."
It presented hyperscalers as the next leaders to replace semiconductor stocks. The report said, "The recent plunge in semiconductor stocks is likely an early signal that market leadership is rotating to other sectors," adding, "In the short term, we prefer reducing exposure to semiconductors and favor hyperscalers."
It also picked consumer goods, transportation, regional banks, and biotech as beneficiaries. Biotech is likely to benefit from falling interest rates and increased M&A, and consumer goods are expected to gain from a recovery in goods spending and better earnings.
Earlier, Morgan Stanley published the report "Memory, winter is coming" in Aug. 2021, when the semiconductor boom had peaked due to the pandemic windfall. After that, a semiconductor downcycle arrived and the prediction hit the mark, increasing the influence of Morgan Stanley's reports in the market.