Morgan Stanley warns of more pressure on chipmakers' pricing power
Morgan Stanley's Lisa Shalett urged investors to be cautious about chip stocks, saying more signs that chipmakers' limited pricing power means the stocks could rise too far on optimism about artificial intelligence spending. "We are seeing the AI data center technology stack being redesigned to incorporate lower-cost self-developed chips, and many hyperscale cloud service providers are now designing these chips themselves," Shalett, chief investment officer of Morgan Stanley Wealth Management, said on Friday. Shalett's warning came as South Korean chipmaker SK Hynix began trading on Nasdaq on Friday. The company previously raised $26.5 billion through a U.S. listing, setting a record for the largest initial public offering by a foreign company in the United States. At the same time, SK Hynix’s South Korean-listed shares have fluctuated violently recently, falling 26% since peaking last month. "Overall, there is still plenty of money available in this trading space," Shalett said. But she noted that the market is experiencing a typical phenomenon in the industry: "When there are bottlenecks in the supply chain and some memory chip manufacturers are making excessive profits, engineers will start" looking for cheaper alternatives. Shalett said in an investor note this week that the semiconductor sector is "clearly overbought." She said on the Surveillance program that signs supporting this judgment can be seen from chip ETFs to the Philadelphia Semiconductor Index. Data shows that the price-to-earnings ratio of the Philadelphia Semiconductor Index has more than tripled since 2022.