Wall Street investment bank Morgan Stanley (MS) expects investors to rotate capital back into the Magnificent 7 technology stocks that include Amazon (AMZN) and Nvidia (NVDA).
Chief Investment Officer Michael Wilson says momentum is fading in high-flying semiconductor stocks as investors shift money back into stocks of artificial intelligence (A.I.) hyperscalers.
Wilson writes in a note to clients that stocks such as Microsoft (MSFT) and Apple (AAPL) are attractive to investors due to their A.I. exposure and strong balance sheets.
Still, Morgan Stanley says that U.S. equities are likely to remain under pressure “given the momentum unwind is happening in some of the larger companies in the index.”
Wilson points out that the Philadelphia Semiconductor Index (SOX) has fallen 14% from a record high in June of this year as investors worry about stock valuations.
Additionally, the S&P 500 Index has struggled since hitting a peak in early June as a rotation of capital starts the year’s third quarter.
Wilson writes that he favors the Magnificent 7 hyperscalers over semiconductor stocks heading into second-quarter earnings season.
The strategist has a target of 8,000 for the S&P 500 by year’s end, which is 7% higher than current levels.
Wilson correctly forecast earlier this year that U.S. stocks would shrug off geopolitical risks and focus on corporate earnings.
Morgan Stanley’s stock is up 18% this year and trading at $213.93 U.S. per share.
