Chip frenzy cooling off? Morgan Stanley’s Wilson: Capital is shifting toward AI supercomputing giants like Microsoft and Amazon

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It is difficult for the US stock market to hit new highs again in the short term, as funds are flowing out from the semiconductor stocks that have seen the biggest gains this year and turning to AI hyperscalers.

Morgan Stanley's Chief Equity Strategist Michael Wilson pointed out in his latest report that the momentum in the semiconductor sector is fading, and investors are beginning to turn to AI supercomputing giants that have lagged this year, including Microsoft, Amazon, and Meta.

He believes this round of rotation is happening against a backdrop of overall market volatility and weakness, with major indexes expected to remain under pressure. Wilson is also keeping his year-end target for the S&P 500 at 8000 points, which is about 7% higher than the current level.

This judgment has a direct impact on the market: chip stocks, which previously led the AI rally, are facing valuation pressure, while supercomputing giants, thanks to their strong core businesses, are expected to become the new destination for capital. Meanwhile, JPMorgan strategist Mislav Matejka holds a similar view, believing that market gains in the second half of the year will spread beyond the tech sector.

Chip Momentum Fades, Valuation Pressure Emerges

The Philadelphia Semiconductor Index has fallen nearly 14% since hitting a record high last month, and concerns about valuation bubbles are rising. Nevertheless, the index has risen 123% since September last year, showing just how much it had previously gained.

Micron Technology issued a better-than-expected sales forecast last month, yet this did not boost chip stocks further, further confirming the weakening momentum in the sector. Investors are now waiting for statements from companies like Nvidia to get more clues about AI chip demand.

Wilson pointed out that the breakdown in momentum is happening in companies with large weights in the index, which will keep the main US benchmark indexes under pressure in the short term. The S&P 500 has gradually pulled back since peaking in early June.

Supercomputing Giants: Value Opportunities Within the AI Ecosystem

Wilson said that he has recently favored supercomputing giants over semiconductor-related stocks. He believes companies like Microsoft, Amazon, and Meta are attractive within the AI ecosystem, mainly because their strong core businesses provide solid support.

In contrast, according to Bloomberg data, UBS's basket of supercomputing giant stocks has dropped 2% since last September, in stark contrast to the gains in the semiconductor sector, indicating room for relative catch-up.

However, Wilson also expects supercomputing giants might begin to lower expectations for their capital expenditure plans in response to recent market concerns over excessive spending on AI. Capital expenditure outlook will become a key focus for investors in the next stage.

Rotation Broadens, Opportunities Emerging Beyond Technology

Wilson's rotation logic is not limited to the supercomputing sector. He is also optimistic about consumer discretionary, transportation, and biotechnology sectors benefiting from capital flowing out of chip stocks.

JPMorgan strategist Mislav Matejka agrees with Wilson, believing that market gains in the second half of the year will extend beyond the tech sector. "AI is unlikely to be the only story in the market," Matejka wrote in a research report.

It is worth noting that Wilson had previously accurately predicted that US stocks would remain resilient thanks to strong corporate earnings despite geopolitical risks, lending credibility to his current outlook. His year-end target for the S&P 500 at 8000 points implies about 7% potential upside from current levels, but short-term volatility risk should not be ignored.

Risk Warning and DisclaimerThe market has risks, investment requires caution. This article does not constitute personal investment advice and does not take into account the individual investment goals, financial situations or needs of users. Users should consider whether any opinions, views or conclusions in this article are suitable for their particular circumstances. Investments made accordingly are at your own risk. ```