Morgan Stanley: Is the storm in AI stocks about to end?
After a week of heavy pressure on technology stocks, it seems the market is starting to send the first sign that sellers are tiring.
The question is whether this is the beginning of a recovery, or just a temporary respite before another wave of declines?
What changed on Friday? Seller pressure weakened, and at the open, buyers entered, taking advantage of the declines to accumulate stocks at attractive prices.
Concurrently, there was unusual activity in closing hedging trades, a move that contributed to improved sentiment and increased demand.
Friday was also the most active day this year in options trading on the AI stock basket, with a large part of the volume stemming from the closing of those defensive positions.
Conclusion?
Hedge funds are no longer pulling the trigger.
According to Morgan Stanley's Prime Brokerage department, hedge funds are no longer a significant source of selling pressure in AI stocks.
Additionally, the risk reduction and synchronized selling process carried out by the funds is in its final stages.
If this assessment is correct, one of the main drivers of pressure that has weighed on the sector recently may disappear.
And despite everything, the risk has not yet disappeared.
Despite the improvement, Morgan Stanley warns that the market is still facing high volatility and concerns about oversupply in the short term.
However, technical indicators suggest that negative momentum has reached extreme levels and is starting to reverse.
The real test comes this week.
This week is expected to be a test for the entire AI value chain as Google releases its results on Wednesday, followed by the other cloud giants.
Here is the question the market is trying to answer: Are cloud companies really starting to slow down massive investments in AI infrastructure, or were the concerns exaggerated?
Meanwhile, Morgan Stanley's research department continues to see a positive picture: the bank raised its capital expenditure forecast for hyperscalers, and at the same time notes that recurring revenue (ARR) figures for AI companies continue to surprise positively.
The market is not looking for stories right now, it's looking for proof.
If cloud earnings confirm that investments in AI infrastructure continue to grow, the recent declines may turn out to be primarily a result of technical selling, closing hedging trades, and deleveraging, rather than a real deterioration in demand.
The coming days will determine whether the market has just paused to breathe, or if it is already preparing for the next run.