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3 AI stocks Morgan Stanley prefers as investors rotate away from chips

Essential brief

Morgan Stanley highlights three artificial intelligence stocks as investors begin rotating capital away from semiconductor companies. While chip stocks surged in June, major AI infrastructure playe

Key topics

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Key facts

Investors are rotating capital from semiconductor stocks to AI hyperscalers like Alphabet, Amazon, and Meta.

Semiconductor stocks surged in June due to AI data center demand, but hyperscalers faced stock pressure from high infrastructure costs.

Morgan Stanley expects hyperscalers to show more disciplined capital expenditure moving forward.

The AI investment landscape is broadening beyond chipmakers to include companies deploying AI at scale.

Highlights

Semiconductor stocks led AI-related gains in June driven by chip and memory demand.

Alphabet, Amazon, and Meta experienced stock pressure due to AI infrastructure expenses.

Morgan Stanley’s July 6 note anticipates capital rotation back to hyperscalers.

Brian Nowak’s research supports bullish cases for hyperscale AI companies.

The AI trade is evolving to balance investments between chip suppliers and AI application developers.

Why it matters

The shift in investor focus from semiconductor stocks to hyperscale AI companies indicates a maturing AI market where infrastructure and application providers both contribute to growth. Understanding this rotation helps investors anticipate changes in capital allocation and identify diversified opportunities within the AI ecosystem.

In recent months, semiconductor stocks experienced significant gains, driven by demand for chips and memory used in data centers supporting artificial intelligence applications. However, major technology companies such as Alphabet, Amazon, and Meta encountered stock price pressure amid concerns over the high costs associated with building AI infrastructure. Morgan Stanley strategists now anticipate a rotation of investment capital from chipmakers back to these hyperscale technology firms.

This anticipated shift is partly due to the hyperscalers having endured a period of underperformance relative to semiconductor stocks. Additionally, Morgan Stanley expects these companies to exercise greater capital expenditure discipline in the near term, potentially improving their financial outlook. The bank’s July 6 strategy note did not explicitly list the three AI stocks but indicated a broader trend of investment diversification within the AI sector.

Separate research from Morgan Stanley internet analyst Brian Nowak supports bullish cases for these companies as the AI trade expands beyond chip suppliers. This suggests that while semiconductor firms remain integral to AI development, investors are increasingly recognizing the value of companies that develop and deploy AI applications at scale.

The evolving investment landscape reflects a maturation of the AI market, where infrastructure providers and application developers both play critical roles. As AI technologies continue to advance, balanced investment across the ecosystem may offer more sustainable growth opportunities.

Overall, Morgan Stanley’s insights highlight a nuanced shift in AI-related investments, emphasizing the importance of hyperscalers alongside chip manufacturers in the sector’s future.

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