Morgan Stanley said the recent weakness in U.S. semiconductor stocks is a sign that the market gains are broadening, with investors likely to turn toward AI “hyperscalers” as well as consumer discretionary, transport and biotechnology shares.

Shift in AI Investments

In a note dated Monday, the brokerage said hyperscalers — an industry term for tech companies that are spending big on data centers — could benefit from a rotation away from semiconductor stocks as the AI cycle shifts.

Alphabet, Amazon, Meta Platforms and others saw heavy selling in June, while the Philadelphia SE Semiconductor index climbed 11% last month. But the chip index has fallen over 11% in the last two weeks, while the Roundhill Magnificent Seven ETF — a proxy to track the seven biggest Wall Street tech companies — has recovered some lost ground.

Morgan Stanley also said that the markets paring back expectations of rate hikes by the U.S. Federal Reserve, along with a fall in crude oil prices, is also driving the rotation out of the red-hot chips trade.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.