Morgan Stanley: Tech Rally Could Extend on AI-Driven Outperformance

Morgan Stanley strategists led by Michael Wilson maintain the outlook for U.S. technology stocks is positive, citing multi-decade high revenue growth expectations offset by recent valuation declines and attractive entry points in Microsoft (MSFT) and Intuit (INTU). The Nasdaq 100 (^NDX) fell at its steepest since December last month, while the Bloomberg Magnificent Seven trades at about 29x forward earnings, near a five-year average. Dip-buying activity was evident Friday, but Nasdaq 100 futures fell 0.7% Monday. Wilson’s team highlights continued outperformance for firms with high capital expenditure-to-sales ratios and adoption of AI in core operations, which outperform by about 1% the day after earnings. A weaker dollar and improving earnings upgrades in semiconductors, software, tech hardware, and the Magnificent Seven support the outlook.