Philadelphia Semiconductor Index Jumps 6%, Reclaims 10,000: Morgan Stanley Says Long-Term AI Investment Logic Has Not Fundamentally Changed, Prefers Nvidia and Broadcom

Morgan Stanley estimates that approximately 20% of U.S. data center projects originally scheduled for 2028 could be delayed to 2029, involving about 5 gigawatts of IT load capacity, equivalent to roughly 10% of relevant global projects. Projects that have already entered the construction phase are not expected to be significantly affected.

According to the bank's estimates, new U.S. data center capacity additions will decline by about 4% year-over-year in 2028, before rebounding by approximately 38% in 2029. This suggests that construction pressures may alter the timing of revenue realization, but they are not yet sufficient to prove that the broader investment cycle is turning into a contraction.

Therefore, Morgan Stanley still maintains its forecasts for total capital expenditures of major cloud computing and tech companies at approximately $1.6 trillion in 2027 and $1.8 trillion in 2028, respectively. The rationale is that scaling large models and AI applications to billions of users will continue to require ongoing increases in computing resources.

A slower construction pace could also provide some buffer. The bank believes this will help ease supply chain imbalances, improve financing conditions, and support compute leasing prices. However, if approval delays widen further, the 2028 capex forecast could still be revised downward.

For semiconductor companies, capital expenditure expectations remain stable, providing demand support for future orders. However, during project delays, some suppliers may still face slowing deliveries, rising inventories, and shrinking margins; therefore, rebound opportunities must be assessed based on each company's specific situation.

Morgan Stanley favors larger, well-capitalized leaders, including Nvidia (NVDA), Broadcom (AVGO), and TSMC (TSM). The firm set a price target of $505 for Broadcom, implying roughly 72% upside from the reference share price in the report.

In the hardware sector, where valuations have pulled back significantly, the firm is also watching Seagate Technology (STX), Western Digital (WDC), as well as Lumentum (LITE), Coherent (COHR), and Arista Networks (ANET). The screening focuses on whether companies can sustain profitability during periods of order volatility and withstand financial pressures from delayed revenue realization.

Meanwhile, Morgan Stanley believes that AI investment opportunities will gradually broaden to software and applications. As enterprises begin deploying AI into practical business operations, it is expected to generate revenue for companies beyond infrastructure while providing a commercial justification for sustained investments in computing power.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.