AI investors may pivot to hyperscalers from chipmakers, Morgan Stanley says

Reuters

Mon, July 6, 2026 at 6:30 AM PDT 1 min read

July 6 (Reuters) - Morgan Stanley said the recent weakness in U.S. semiconductor stocks is a sign that the market ‌gains are broadening, with investors likely to turn toward ‌AI "hyperscalers" as well as consumer discretionary, transport and biotechnology shares.

In a note dated ​Monday, the brokerage said hyperscalers — an industry term for tech companies that are spending big on data centers — could benefit from a rotation away from semiconductor stocks as the AI cycle shifts.

Although the ‌likes of Alphabet ⁠and Amazon have committed billions to scale up their AI infrastructure, skyrocketing the share prices of semiconductor ⁠companies, clear evidence that AI products can generate returns that justify the spending is yet to be seen.

But Morgan Stanley said there ​could be "more ​capex discipline in the near-term" ​and that the hyperscaler stocks ‌have already gone through their period of underperformance.

Alphabet, Amazon, Meta Platforms and others saw heavy selling in June, while the Philadelphia SE Semiconductor index climbed 11% last month.

But the chip index has fallen over 11% in the last two weeks, while the ‌Roundhill Magnificent Seven ETF — a proxy ​to track the seven biggest Wall Street ​tech companies — has recovered ​some lost ground.

Morgan Stanley also said that the ‌markets paring back expectations of rate ​hikes by the ​U.S. Federal Reserve, along with a fall in crude oil prices, is also driving the rotation out of the ​red-hot chips trade.

Consumer ‌discretionary goods, transports and biotechnology-related stocks could benefit from the ​rotation, according to the brokerage.

(Reporting by Shashwat Chauhan in ​Bengaluru; Editing by Sahal Muhammed)