Wall Street turns selective on tech leadership
Wall Street is becoming far more discerning about where future equity gains will originate. Looking ahead to 2026, Morgan Stanley argues that artificial intelligence remains central to the technology investment case, but warns against assuming that recent explosive growth will continue in a straight line.
After several years of exceptional returns in U.S. equities, driven largely by megacap technology stocks, the bank believes the next phase will be defined less by multiple expansion and more by steady earnings growth. Computing demand continues to rise rapidly, keeping semiconductors at the core of the AI narrative for a third consecutive year, even as volatility and consolidation increase.
AI growth remains strong but uneven
Morgan Stanley cautions that forecasts assuming uninterrupted acceleration in AI spending are unrealistic. Instead, the firm expects a choppier trajectory marked by pauses and recalibration. This view contrasts with more aggressive projections that ignore capital discipline and supply chain constraints.
The bank’s outlook for the broader market reflects this moderation. Its current target places the S&P 500 at 7,800 by the end of 2026, implying upside driven primarily by profit expansion rather than speculative excess. The emphasis is on companies with durable competitive advantages, visible earnings streams, and valuations that still leave room for appreciation.
Preferred semiconductor themes and stocks
Within technology, Morgan Stanley continues to favor semiconductors as the most direct way to capture AI-driven demand. However, its focus is tightly concentrated on areas where market expectations appear misaligned with long-term fundamentals.
The bank highlights several segments across the chip ecosystem. AI processors remain foundational, with Nvidia and Broadcom positioned as core holdings. Data center connectivity is another area of interest, where Astera Labs offers exposure without the valuation burden of megacap peers. Memory, manufacturing equipment, and analog chips round out the strategy, reflecting the importance of scale as AI workloads expand.
Nvidia and Broadcom anchor the AI thesis
Nvidia remains Morgan Stanley’s top processor pick, supported by the upcoming ramp of its Vera Rubin platform in the second half of 2026. The firm views the architecture as offering a compelling return on investment, with significant performance gains over previous generations and a smoother supply chain transition.
Broadcom, meanwhile, is seen as a direct beneficiary of rising demand for custom silicon and advanced networking. As hyperscalers increasingly turn to bespoke chips, Broadcom provides leveraged exposure to this trend with relatively clear earnings visibility.
Measured optimism beyond processors
Morgan Stanley’s outlook extends beyond headline-grabbing processors. Memory suppliers such as Micron are expected to benefit from tight supply and strong pricing as data centers absorb growing volumes of high-bandwidth memory. While growth may fluctuate, underlying demand remains supportive.
In manufacturing, Applied Materials and Taiwan Semiconductor are highlighted for their role in enabling advanced chip production and capacity expansion tied to AI workloads. Analog chips, though slower-moving, also present selective opportunities, with NXP Semiconductors and Analog Devices standing out for their balance of growth potential and valuation discipline.
