Is AI selloff a window to buy? Morgan Stanley sees multiple buying opportunities on Wall Street

As the frenzy around artificial intelligence (AI) fizzles out, Morgan Stanley has struck a positive note, with the international brokerage firm seeing buying opportunities among AI enablers, infrastructure providers and adopters.

After Democratic victories in the US midterm elections triggered concerns that a Democrat-controlled Congress would curb excessive AI spending on data centres, tech stocks plunged and have been trading on a seesaw since then. Morgan Stanley noted that Wall Street had undergone an earthquake event over the past week, with significant uncertainty surrounding the impact of the midterms on the data centre build-out, the trajectory of the cycle and the implications for global stocks.

It broadly views the recent market weakness as unwarranted. “We see the market moves as an overreaction and think the ultimate impact will be a push-out of some projects from 2028 to 2029, rather than a derailing of the capex story. This has the potential to elongate the AI capex cycle, which has positives including a smoother supply-demand rebalancing across the data centre supply chain, improved credit outlook, and higher lease rates for compute,” it said.


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Morgan Stanley has sized the impact on the data centre build-out and flagged implications for stocks, policy and equity strategy across the US, Asia and Europe. "We are recommending a selective ‘Buy the Drop’ strategy and remain most constructive on the hyperscalers, select semis/infrastructure/time-to-power solutions that have de-rated materially, and software enablers and AI adopters as AI value creation broadens,” it further said.

How Trump's midterm defeat can impact the AI trade

The newly elected Democratic governors are unlikely to disrupt projects under construction, leaving 2027 projects unchanged, Morgan Stanley said. However, it believes some 2028 projects in Texas and Ohio will be delayed to 2029, as governors work with legislators to put in place new requirements for data centre developers.

The international research firm shifted 5 GW of US data centre capacity from 2028 to 2029, representing 20% of US projects and 10% of global projects. This implies that US data centre capacity additions will decline 4% year-on-year in 2028 and rise 38% year-on-year in 2029. Globally, this implies data centre additions will rise 9% year-on-year in 2028 and 20% in 2029.

“This could create an air-pocket across the tech supply chain in 2028, leading to a reduction in pricing power or a build of inventory, although we believe valuations are pricing this in across many names, with the key risk being the sustainability of margins. We also believe this creates an attractive opportunity to potentially build data centres abroad and forecast 20GW of potential spillover across Asia and EMEA,” it added.

That said, Morgan Stanley is mindful that delays in project approvals or initiation, on top of existing constraints around labour and materials, could put downward pressure on its 2028 capex estimates and prolong the build-out and capex cycle.

“We are highly focused on increased (exponential) compute efficiencies from leading labs in 2027 to allow products to scale with less compute. Compute constraints aren't new, and they may just stay around longer with further data centre delays,” it added.

Finally, financing remains available, but the midterms should deepen the quality divide, Morgan Stanley said. With capex forecasts unchanged, it still expects higher AI-related debt issuance in 2027, led by hyperscalers. New construction financings and neoclouds face greater scrutiny, making tenant quality, a credible path to energisation and contractual protections increasingly important.

“We see more limited exposure to new restrictions for projects already backing outstanding bonds, although execution risk remains. Slower competing development should support stabilised, cash-flowing assets, reinforcing our preference for colocation over hyperscaler data-centre ABS.”

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Which AI stocks to buy?

Given the significant price weakness across a range of AI-related stocks following the US election results, Morgan Stanley provided its updated views on which stocks or sectors look most attractive, highlighting three key areas. It has three main buckets of investment recommendations.

These include hyperscalers (Amazon, Meta, Google and Microsoft), select data centre supply chain names, and software enablers or AI adopters. Nvidia is also mentioned among the stocks, but it belongs to the semiconductor category rather than the hyperscaler category. The brokerage also suggested a ‘Buy the Drop’ approach, identifying selective ways to play the AI investment opportunity post-midterms.

Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.