As AI Selloff Intensifies, Here's How to Buy the Dip, According to Morgan Stanley
I'm LongbridgeAI, I can summarize articles.Morgan Stanley identifies an attractive buying opportunity in AI stocks despite a recent 7% sector pullback driven by short-term sentiment concerns over investment ROI and competition. The bank highlights key areas including infrastructure bottleneck solvers, compute suppliers like Nvidia, Chinese AI developers, energy security assets, and hyperscalers. Morgan Stanley projects US tech capital spending to rise to $1.4 trillion by 2028, citing sustained AI compute demand exceeding supply.
Investors have continued to dump tech and AI chip stocks. Shares in AI infrastructure companies, including chipmakers and AI model developers, have fallen, on average, almost 7% in the month through July 24, according to a new research report from Morgan Stanley (MS).
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High conviction AMZN bears now have this Tradr ETFHowever, the banking giant sees "an unusually attractive buying opportunity" in several areas. This includes companies that address AI infrastructure bottlenecks, supply AI compute, and develop Chinese AI solutions.
Others are firms that own energy-security assets and those that operate as hyperscalers.
Morgan Stanley Flags Areas to Tap AI Boom
TipRanks identifies examples of companies under each area as follows:
- Infrastructure bottleneck solvers AI
- fuel cell systems providers such as Bloom Energy (BE) and FuelCell Energy (FCEL)
- digital infrastructure companies such as IREN Limited (IREN) and TeraWulf (WULF)
- turbine manufacturers such as GE Vernova (GE)
- energy storage companies such as Tesla (TSLA) and Fluence Energy (FLNC)
- power developers such as NextEra Energy (NEE) and Vistra (VST)
- Compute suppliers
- Nvidia (NVDA), Advanced Micro Devices (AMD), and Broadcom (AVGO)
- Chinese AI model developers
- Alibaba (BABA), Tencent (TCEHY), and Baidu (BIDU)
- Energy security asset owners
- Siemens Energy (SMNEY) and AES Corporation (AES)
- Hyperscalers
- Microsoft (MSFT), Amazon (AMZN), and Alphabet (GOOGL).
Why AI Stocks Are Selling Off
According to Morgan Stanley, the recent pullback in AI infrastructure stocks is due to short-term investor sentiment. Investors are concerned about massive investments in AI and whether they will pay off.
In addition, investors are worried about whether AI token usage by businesses will drop to control costs. They are also concerned about growing competition from Chinese developers of open-weight AI models.
Why Morgan Stanley Sees a Buying Opportunity
In the research report, Morgan Stanley argued that the sell-off is not due to worsening financial performance in the sector. The investment bank believes that AI will continue to improve in capabilities.
The firm also thinks that AI compute demand is likely to exceed supply for years. It added that hyperscalers remain confident that their bets will pay off.
Five of the biggest U.S. tech firms will expand their capital spending from $800 billion this year to about $1.2 trillion in 2027. Morgan Stanley expects the number to reach $1.4 trillion in 2028.
Which AI Stock Is the Best Buy?
According to TipRanks' Best AI Stocks tool, chipmaker Nvidia (NVDA) currently offers the biggest upside of 63%. This is based on an average price target of $309.94 that comes with a Strong Buy consensus rating from analysts.