AI Isn’t Done Yet: Morgan Stanley Sees Fresh Upside in Big Tech After the Shakeout

After a bruising week for U.S. technology stocks, Morgan Stanley is telling investors not to blink.

According to strategists at the Wall Street giant, the recent selloff hasn’t broken the artificial intelligence trade—it may have reset it for another leg higher.

In a note led by Michael Wilson, the bank’s team said revenue growth expectations for the largest tech companies have surged to multi-decade highs, even as valuations have cooled following the latest bout of market volatility. The combination, they argue, creates fertile ground for renewed gains.

Last week rattled tech investors. The Nasdaq 100 suffered its steepest weekly decline since December, while software stocks were hit particularly hard after the launch of a new AI tool reignited fears of disruption across the sector.

But Wilson isn’t reading the pullback as a warning sign.

“Periods like last week are not uncommon in major investment cycles,” he wrote. “That said, fundamental tailwinds remain in place for the AI enabler complex, and the AI adopter trade remains underappreciated in our view.”

In fact, Morgan Stanley believes the rout in software has opened up “attractive entry points” in high-quality names such as Microsoft and Intuit, especially for investors with a longer time horizon.

One of the key shifts underpinning the bank’s optimism is valuation.

The Bloomberg Magnificent Seven Index—which tracks tech’s largest heavyweights—now trades at roughly 29 times forward earnings, slightly below its five-year average. That comes even as revenue growth expectations have climbed to levels not seen in decades.

In short: earnings optimism is rising while prices have pulled back—a setup strategists say is hard to ignore.

Morgan Stanley’s analysis also suggests investors aren’t yet punishing companies for heavy spending on AI.

Stocks with higher capital-expenditure-to-sales ratios continue to outperform the broader market, indicating that investors are still rewarding aggressive investment rather than demanding restraint.

That dynamic, Wilson said, suggests the AI investment cycle remains intact—and far from over.

While much of the market fixates on chipmakers and infrastructure builders, Morgan Stanley sees a quieter opportunity elsewhere.

Companies adopting AI within their core businesses, rather than building the technology itself, are outperforming. According to Wilson, this group beats the broader market by about 1% the day after earnings, a sign investors may be underestimating how quickly AI can lift margins and productivity.

The strategists also point to currency support. With roughly half of Nasdaq 100 revenues generated overseas, a weaker U.S. dollar could provide an additional boost to earnings.

Morgan Stanley sees signs of a broader rebound in earnings upgrades across semiconductors, software, tech hardware, and the Magnificent Seven—suggesting the recent turbulence hasn’t derailed the sector’s longer-term trajectory.

Not everyone is rushing back in just yet. While some dip-buyers stepped in late last week, Nasdaq 100 futures slipped 0.7% on Monday, hinting that near-term confidence remains fragile.

Still, Morgan Stanley’s message is clear: the AI story didn’t peak with last week’s selloff.

For investors questioning whether the massive AI spend will pay off, Wilson’s answer is simple—the fundamentals are still pointing up, even if the ride remains bumpy.