Chip sector pulls back from highs, Morgan Stanley expects ultra-large-scale cloud service providers to usher in a rotation of market recovery
July 6, EST, A team of strategists released the latest industry research report stating that the significant correction in the global semiconductor sector over the past few weeks not only reflects the phased cooling of chip trade, but may also trigger wide fluctuations in the overall stock market. Against this background, global capital is accelerating its rotation from high-valued hardware to low-valued valuations. Hyperscalers, which suffered deep declines in the early stage, are expected to usher in a new round of rebound by leveraging their cost control and application-side advantages. The team of strategists at Morgan Stanley pointed out in a client report that the current violent fluctuations in the semiconductor sector mark a phased rebalancing within the artificial intelligence (AI) industry chain. Although the Philadelphia Semiconductor Index (SOX) still has a cumulative increase of 78% this year, the continuous corrections in the past two weeks have put selling pressure on high-end funds; in contrast, the Roundhill Giant Technology Stock ETF (MAGS), which covers many technology giants and very large-scale cloud service providers, fell slightly by 1.3% this year. Its early oversold performance has actually digested the risk of a correction in the chip sector in advance. The report analysis believes that ultra-large-scale cloud service providers currently have extremely high investment appeal. Affected by the weak stock price performance in the past few months, the market's concerns about overheating capital expenditures of related technology companies are gradually cooling down. Recent market news that Internet giants such as Meta plan to launch cloud services to monetize excess artificial intelligence computing power is further catalyzing the endogenous momentum of this sector. Morgan Stanley emphasized that this asset cluster has a significant "option" advantage in the artificial intelligence ecosystem. It not only has a stable core main business, but also has the ability to participate in and lead the development and implementation of the agent (Agentic) application layer. At the same time, its leverage effect in cost control has been underestimated by the market before. In response to the overall trend of the macro market, the Morgan Stanley team reminded that given that this high correction occurred within some of the weighted chip giants, investors should remain cautious about the overall stock market experiencing wide fluctuations or weakening in the future. In addition, based on the latest changes in the commodity market, the Morgan Stanley team sorted out rotation opportunities in other sectors in the report. The report points out that as international crude oil prices continue to fall, consumers' wallet share is shifting from the service industry to commodity consumption, and consumer goods companies currently have the best risk-reward ratio. At the same time, the biotechnology sector also presents obvious investment opportunities. The Wilson team pointed out that as one of the areas most sensitive to interest rate changes, the biotechnology sector has a historical annualized return of close to 20% during the peak and downward interest rate cycle. With the core consumer price index (CPI) expected to remain below 3%, current market expectations for monetary policy rates during the year are too hawkish, making the biotech sector another attractive risk hedging option.