Morgan Stanley: Favors hyperscale cloud computing companies over chip firms in the coming months.

Morgan Stanley’s strategy team, led by Mike Wilson, stated that after the semiconductor sector’s 20% correction, broader industry segments could drive further market gains. “On the contrary, we believe the market’s broadening trend will persist. Once this correction ends, broader industry segments will push the market higher before the end of the year,” the team noted. Morgan Stanley added that consumer discretionary and transport sectors may benefit, as expectations of improved earnings in these areas have not yet been fully priced into their stock prices. The firm favors large-scale cloud computing companies over chip firms in the coming months. However, Wilson’s team pointed out that cloud stocks have risen roughly 30% more than chip stocks over the past three weeks, so their current risk-reward ratio has declined. Morgan Stanley remains bullish on large tech firms, citing their strengths including stable core businesses, the growth potential of generative AI, and profit-enhancing capabilities. The firm maintains its year-end S&P 500 target of 8,000, but warns that the index could fall back to around 7,000 if momentum trading reverses broadly or the Middle East conflict escalates further.