Morgan Stanley has assessed that the upward momentum of semiconductor stocks is weakening as investors rotate into sectors that have been relatively sluggish, including hyperscalers (large-scale data center operators).

Bloomberg and other media outlets reported on July 6 (local time) that the Morgan Stanley team, led by U.S. Chief Equity Strategist Michael Wilson, provided this analysis in a recent report.

The team explained that companies represented by Amazon, Microsoft, and Meta Platforms are attractive due to their solid core businesses within the AI ecosystem.

They further projected that semiconductor stocks, which were the top-performing group this year, will face difficulties in reaching new highs due to the effects of sector rotation.

The Philadelphia Semiconductor Index has plunged approximately 14% from its peak last month.

However, it remains 123% higher than it was in September of last year.

In contrast, the UBS hyperscaler basket is down 2% since September of last year.

According to Reuters, the Philadelphia Semiconductor Index rose 11% during the month of June but has fallen more than 11% over the past two weeks.

Morgan Stanley pointed out that the retreat in expectations for Federal Reserve interest rate hikes and the decline in international oil prices are also fueling the rotation away from semiconductor investments.

Morgan Stanley noted that while companies like Alphabet and Amazon have invested billions of dollars in AI infrastructure, the revenue to justify such spending has not yet been clearly identified. However, they stated that in the short term, "capital expenditure discipline could be strengthened."

Strategist Wilson said in an interview with Bloomberg TV, "Hyperscalers will now stabilize," adding, "Semiconductor stocks will undergo a correction."

He added that this divergence is "not sustainable."

With semiconductor stocks failing to sustain a rebound despite Micron's surprise revenue forecast, investors are awaiting further clues regarding AI semiconductor demand from Nvidia's earnings report.

Wilson identified consumer discretionary, transportation, and biotech as sectors that would benefit from the rotation out of semiconductor stocks.

JPMorgan strategist Mislav Matejka shared a similar view, suggesting that the stock market rally in the second half of the year will expand beyond tech stocks, stating, "AI will not be the only story."

Wilson set a year-end target of 8,000 for the S&P 500, which implies an upside potential of 6.1% from the level as of July 6 (7,537.43).

(Photo: AP, Yonhap News)