Wall St brokerages say AI selloff overdone, downplay Democrat regulation risks

Wall Street brokerages including Morgan Stanley and UBS called last week's rout in the AI trade overdone, arguing that the risks of extreme regulation of data center developments under a Democrat-controlled Congress are unlikely to play out.

They instead pointed to Anthropic's IPO and Nvidia's upcoming quarterly earnings as events likely to have a bigger impact on the AI trade.

Nvidia is set to report earnings after the markets close on November 17 and is expected to report a more than 12% rise in data center revenue on a quarterly basis.


Morgan Stanley said the selloff looked overdone and that the ultimate impact would 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 center supply chain, improved credit outlook, and higher lease rates for compute," the analysts said in a note.

The brokerage said it recommended "buying the drop" and remained positive on AI hyperscalers including Amazon.com, Meta Platforms and Alphabet.

It also said it saw opportunities in semiconductor firms Nvidia and Broadcom, data storage firms Seagate and Western Digital and optical networking firms Coherent and Lumentum.

Brokerage HSBC said in a note that it is using last week's correction to increase its exposure to equities again, leaning into tech stocks in the US and Asia. It views AI lab Anthropic's IPO as the main catalyst in the coming weeks.

Jefferies equity analyst Jane Gibbons viewed the November 5 selloff as "reactionary", rather than a fundamental reset, while UBS analysts said markets had become too negative on AI political risk, AI credit risks and AI spending.

Gibbons wrote in a note that historically, daily S&P 500 declines of more than 4% have been followed by strong forward returns, with the S&P 500 up 11.9% over six months and up more than 20% over 12 months.