Morgan Stanley Prefers Hyperscale Cloud Companies Over Chip Firms in Coming Months

On July 21, the Morgan Stanley strategy team led by Mike Wilson stated that after a 20% correction in the semiconductor industry, broader sectors could drive further market gains. "On the contrary, we believe the trend of market diffusion will persist, and once this correction ends, a wider range of sectors will push the market higher by year-end," said Morgan Stanley. The firm believes that consumer discretionary and transportation sectors may benefit, as expectations for earnings improvement in these areas have not yet been fully reflected in stock prices. In the coming months, the firm prefers hyperscale cloud companies over chip firms. However, Wilson's team noted that with cloud stocks having already risen about 30% relative to chip stocks over the past three weeks, the risk-reward ratio has declined. Morgan Stanley remains bullish on large tech companies, citing advantages such as stable core businesses, potential for agentic AI development, and ability to improve profit margins. The institution maintains its S&P 500 year-end target of 8,000 points, but warns that if momentum trading reverses or the Middle East conflict escalates further, the index could fall back to around 7,000 points.