Key Takeaways:
Morgan Stanley named 7 semiconductor and AI infrastructure stocks as buys after last week's 10% sell-off in the Philadelphia SE Semiconductor Index.
"We think that the best value in the market comes from the compute names, notably NVDA and AVGO, but memory is catching up quickly given this deceleration, and we think this should provide a good entry point for the stocks," Joseph Moore, analyst at Morgan Stanley, said.
The VanEck Semiconductor ETF dropped 8.9% last week, its biggest weekly decline since April 2025 when it fell 15%. Nvidia shares have pulled back 4% over the past month, while Broadcom has declined nearly 10%. The SOX index fell nearly 10% in the same period.
The sell-off followed the release of Chinese company Moonshot AI's Kimi K3 frontier model, which raised concerns about consolidation at the application level. However, Wall Street analysts broadly see hardware fundamentals as intact, with Mizuho's Vijay Rakesh noting "a lot of gas left in the tank" as AI capital expenditures and gigawatt power installations ramp beyond 2028.
Moore said memory stocks are "catching up quickly" after the deceleration, suggesting the group now offers compelling value alongside compute names. Morgan Stanley's recommendations span both categories, though the firm did not disclose the full list of 7 tickers or specific price targets.
Other banks have echoed cautious optimism. Mislav Matejka at JPMorgan said semiconductors "should soon start to find a bid," adding that meaningful supply additions are not due before 2028. Evercore's Mark Lipacis described the 20% SOX decline over four weeks as a "mid-cycle correction" but warned it could take another 2 to 3 weeks and a further 10% to 15% decline before a bounce. Historically, the median post-correction SOX bounce is 36% over 20 weeks, he said.
The recommendation signals that Morgan Stanley sees the recent rout as an overreaction rather than a structural shift. Investors will watch for further analyst calls on individual names and the next SOX index level as a gauge of whether the correction has run its course.
This article is for informational purposes only and does not constitute investment advice.
