Wall St brokerages say AI selloff overdone, downplay Democrat regulation risks

Wall Street brokerages have downplayed the recent AI selloff, asserting that concerns over heavy regulation of data centers under a Democrat-controlled Congress are likely to be overblown. Morgan Stanley and UBS suggest that the market's reaction was excessive and that the impact on the AI sector will likely be a slight delay in some projects, rather than a complete derailment.

In contrast, Nvidia's upcoming earnings report, slated for November 17, is seen as a more significant event that may drive the AI sector forward. Analysts from Morgan Stanley predict that the AI capex cycle may be extended, potentially leading to a smoother supply-demand balance, improved credit outlook, and higher lease rates for compute.

The brokerages remain positive on AI hyperscalers like Amazon, Meta, and Alphabet, while also identifying opportunities in semiconductor firms, data storage firms, and optical networking companies. HSBC has increased its exposure to US and Asian tech stocks, viewing Anthropic's upcoming IPO as a key catalyst. Some analysts argue that the market's reaction to potential political and credit risks associated with AI was premature, pointing to historical trends where significant market declines were followed by strong returns.