"What We Fear Most Is Fear Itself": Morgan Stanley Advises Buying Chipmakers' Stocks

Morgan Stanley analysts are urging investors to buy shares of semiconductor manufacturers following last week’s massive market crash. The strategists argue that the risk-reward ratio has “improved significantly” across all the companies they are tracking, as the decline appears “excessive,” according to Seeking Alpha.

Morgan Stanley has presented a ranking of its preferred subsectors within the semiconductor industry and its top picks. At the top of the list are GPU/XPU-based computing solutions (graphics processing units and specialized computing accelerators).

“The computing segment is our favorite: demand here remains very high, valuations are attractive, and the business model protects profitability from a sharp contraction in the event of a drop in demand,” the analysts wrote. Among their top picks, they named Nvidia and Broadcom, which are trading at a P/E ratio of about 9x for 2028. The P/E ratio reflects the relationship between a stock’s price and the company’s earnings; a ratio of 9x means that, at current prices, investors are paying just $9 for every dollar of earnings expected by 2028.

Shares of memory manufacturers rank second. Morgan Stanley noted that “the decline in market valuations in the memory sector is creating increasingly obvious growth potential.” Analysts singled out SanDisk and Micron, calling their valuations equally attractive at current levels.

In the central processing unit (CPU) segment, Morgan Stanley displayed notable caution, which ran counter to the market consensus. Analysts stated that they prefer to “stay away from Intel, which has been the main beneficiary of improved performance on a comparable basis.” Although demand for processors remains high and shortages persist, the firm believes that this shortage will last for a shorter period than in the memory sector, while valuations are higher. This leads them to favor Advanced Micro Devices over Intel, even though the CPU subsector as a whole ranks last in their rating system.

Although the recent market crash poses a certain risk, the predictability of the business outlook remains “exceptionally strong” thanks to steady demand from large-cap companies willing to bear costs over several years, Morgan Stanley said.

“What we fear most is fear itself,” the strategists wrote, noting that even non-cloud-based companies struggling with high interest rates cannot provide all the necessary computing power.

Morgan Stanley strategists also believe that concerns about shortages of land, electricity, and space—which could limit the expansion of data centers—are exaggerated. After speaking with clients, the analysts noted that “the impression is that all these factors will still not be the biggest problem through 2027, since there simply aren’t enough semiconductors to fill the approved space.”

This article was AI-translated and verified by a human editor