Wall Street brokerages call AI stock selloff overdone, see buying opportunity in tech stocks

Wall Street brokerages, including Morgan Stanley and UBS, have described last week's selloff in artificial intelligence-related stocks as overdone, arguing that concerns about tougher regulation of data centre developments under a Democrat-controlled Congress are unlikely to derail the broader AI investment cycle, according to a report by Reuters.

Instead, analysts believe upcoming catalysts, including a potential initial public offering (IPO) by AI startup Anthropic and Nvidia's quarterly earnings, are likely to have a greater influence on the direction of AI-related stocks in the coming weeks, according to the report.

Nvidia is scheduled to announce its quarterly results after the US market closes on November 17. The chipmaker is expected to report a more than 12% sequential increase in data centre revenue, reflecting continued demand for AI infrastructure and computing capacity.


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Morgan Stanley said the recent correction appeared excessive, arguing that the potential impact of political and regulatory concerns would more likely delay some data centre projects from 2028 to 2029 rather than undermine the overall capital expenditure outlook.

The brokerage believes such delays could extend the AI infrastructure investment cycle. A more gradual pace of development could help balance supply and demand across the data centre supply chain, improve credit conditions and support higher leasing rates for computing capacity.

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Morgan Stanley recommended investors use the recent decline as an opportunity to increase exposure to AI-related stocks. It maintained a positive outlook on major technology companies and cloud infrastructure providers, including Amazon, Meta Platforms and Alphabet.

The brokerage also highlighted opportunities across the AI supply chain, identifying chipmakers Nvidia and Broadcom, data storage companies Seagate and Western Digital, and optical networking firms Coherent and Lumentum as stocks worth watching, as per the report.

HSBC is also using last week's market correction to increase its equity exposure, with a preference for technology stocks in the United States and Asia. The brokerage identified Anthropic's anticipated IPO as a key potential catalyst for the AI trade over the coming weeks, according to Reuters.

Jefferies equity analyst Jane Gibbons viewed the November 5 selloff as a reactionary market move rather than evidence of a fundamental deterioration in the technology sector's outlook.

UBS analysts similarly argued that investors had become excessively pessimistic about the political risks surrounding AI, potential credit market vulnerabilities and the sustainability of spending on artificial intelligence infrastructure, the report stated.

Gibbons also pointed to historical market performance following sharp declines as a reason for investors to remain constructive. Her analysis found that daily declines of more than 4% in the S&P 500 have historically been followed by strong forward returns, with the benchmark gaining 11.9% over the subsequent six months and more than 20% over 12 months.

The assessments from major Wall Street brokerages suggest that despite recent volatility, confidence in the long-term AI investment story remains intact. Investors are now likely to focus on corporate earnings, infrastructure spending plans and developments surrounding major AI companies to determine whether the recent correction represents a temporary setback or a broader shift in market sentiment.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)