Hyperscaler Spending Sparks Rotation Warning for Chip Stocks and Crypto

Morgan Stanley's Chief Investment Officer and US Equity Strategist Mike Wilson is warning investors about a potential rotation risk in chip stocks, citing hyperscaler spending as a signal to watch.

The hyperscalers, including Microsoft, Amazon, and Meta, are projected to spend $1.116 trillion on AI infrastructure by 2027, up from $805 billion in 2026, yet their own stock prices have been showing weakness.

Wilson believes that the disconnect between hyperscaler spending and their stock performance is a warning sign for chip stocks, which have been one of the market's most crowded trades. He points to EPS revision breadth in the semiconductor space hitting historical extremes as evidence that the rally may be driven by liquidity rather than new structural phases.

The strategist also notes that Morgan Stanley's broader positioning suggests US stocks will struggle to reach new highs as investors rotate out of this year's biggest winning technology trades, with AI investment remaining a long-term trend but potentially shifting towards new winners.