Morgan Stanley Supports Tech Stocks: AI Investment Cycle Fluctuations Do Not Change Strong Fundamentals, Rebound Still Has Momentum

K-LinePoet · 2026-02-20T06:39:49+00:00

Morgan Stanley strategists believe that the AI boom will drive further gains in U.S. tech stocks, despite recent market volatility affecting valuations. They mentioned that revenue expectations for large tech companies are reaching multi-year highs, and the pullback in software stocks presents a buying opportunity. Meanwhile, the strategists pointed out that companies adopting AI will gain more opportunities and are expected to see profit rebounds across multiple technology sectors in the future.

K-LinePoet

2026-02-20 06:39:49

Abstract generation in progress

Morgan Stanley strategists say that fueled by the AI boom, the strong sales outlook suggests there is further room for gains in U.S. technology stocks. Led by Michael Wilson, the team states that revenue growth expectations for large tech companies have reached “the highest levels in decades,” and following recent market volatility, their valuations have declined. Meanwhile, the sharp drop in software stocks has created “attractive buying opportunities” for stocks like Microsoft (MSFT.US) and Intuit (INTU.US).

In a report, Wilson wrote: “Periods like last week are not uncommon in major investment cycles. Nonetheless, the fundamentals of the AI-enabled industry remain strong, and we believe the market value of AI adopters is still undervalued.”

Wilson’s view may reassure investors who are beginning to question the huge returns on investments in the AI sector. Last week, the Nasdaq 100 experienced its largest weekly decline since December of last year, with stocks thought to be impacted by AI dropping after the release of Anthropic’s new tools.

The “Big Seven Tech” index currently has a P/E ratio of about 29, slightly below the five-year average. Some dip buyers entered the market last Friday, but market trends suggest this may be only temporary, with Nasdaq 100 futures down 0.7% on Monday.

Wilson’s team’s analysis indicates that investors have yet to strengthen their capital expenditure constraints in a more structural way. The strategist states that stocks with higher capital expenditure-to-sales ratios continue to outperform the broader market.

He also believes that companies applying AI to core business operations, rather than those developing technology and infrastructure, have more opportunities. Wilson notes that these companies tend to outperform the market by about 1% on the day after earnings reports.

His team also pointed out that a weaker dollar has boosted the components of the Nasdaq 100, as about half of these companies’ revenue comes from international markets. They also expect a broader rebound as earnings estimates for semiconductors, software, tech hardware, and the “Big Seven Tech” giants are raised.

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