Morgan Stanley drops surprising message on tech stocks
Morgan Stanley’s Andrew Slimmon thinks large-cap tech stocks are poised for a dramatic comeback. He thinks markets are underestimating the group’s next move after months of underperformance.
This is shocking, to say the least, given that the narrative around technology has deteriorated lately.
We have recently seen a shift towards industrial sectors, cyclical activity and assets linked to interest rate cuts, leaving the big guns submerged in technology.
For perspective, According to PortfoliosLab, Industrial Select Sector SPDR Fund (XLI) got up 2.80% last monthMeanwhile Technology Select Sector SPDR Fund (XLK) below 0.33%.
While technology is still ahead on a full-year basis, things have clearly gotten tougher lately.
To be fair, as someone who’s been following the stock market for nearly half a decade, particularly Magnificent 7, I’ve seen this movie before.
Investor sentiment can change quickly, and stocks that were nearly untouchable can suddenly feel like yesterday’s trade.
Slimmon’s approach goes beyond this prevailing view.
He argues that big tech looks much more affordable than many sectors to which investors are flocking. Earnings have not fallen, but expectations have risen.
While earnings remain strong and valuations remain cool, the spectacular 7 gains have stalled recently.Photo: Spencer Platt, Getty Images” loading=”eager” height=”640″ width=”960″ class=”yf-lglytj loader”/>
The Magnificent 7 gains have stalled recently, although earnings remain strong and valuations remain cool.Photo: Spencer Platt at Getty Images
The Magnificent 7 is basically Mr. Market’s nickname for seven of the biggest mega-cap tech leaders who can effectively drag the major benchmarks up or down almost on their own.
A Bank of America strategist popularized the label because of the group’s dominance in the market. S&P 500total capitalization.
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Over the years, concentration levels have become extreme.
Reuters reported that Mag 7 represents roughly one third The weight of the S&P 500 and almost 45% from Nasdaq 100.
This led to comments from Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management: Reuters reported.
The key point Slimmon makes is this: gain never broke.
Large-cap tech stocks lagged despite results being positive, causing valuations to decline heading into 2026.
This is a very different pattern from what we see in cyclical and industrial stocks, where prices reflect optimism about an easier recovery. monetary policy.
Slimmon leaned on popularity Warren Buffet The idea is to explain the growing disconnect between price action and performance.
In an interesting dilemma, industrial stocks need earnings to justify their expanding valuations, while tech also has earnings but valuations don’t follow suit.
Big Tech in perspective 3rd Quarter 2025 earnings season delivered the goods.
Information Set Says Mag 7 gives a strong report 18.4% Year-over-year earnings growth in Q3 11.9% for the other 493 S&P 500 companies. Firm forecasts Mag 7 growth for Q4 2025 19.8%.
Moreover, Slimmon flagged a technology exception: financials are still trading at nearly the same level. 30% discount to the wider market.
He also dismissed concerns about massive AI-related IPOs or debt issuances impacting markets, saying he didn’t see that as a major negative in 2026.
The latest stock market figures for the Magnificent 7 show that momentum has largely stalled.
Big Tech stocks have been solidly in the green in the past six monthsbut their quarterly return the bottom line weakens upward.
Actually, NvidiaThe party’s most expensive stock is currently trading at 1,000 47x earningsaccordingly macrotrendscomfortably under The early January 2020 level is close to 52and long ago artificial intelligence boom came into play.
Momentum fades significantly as Nvidia shares rise RSI figure Now 56 (relative power index is a momentum meter where readings above 70 indicate overheating), End of July 2025 (at 78).
Tesla’s 6 months: +37.91% compared to 3 months: -1.50%
Apple 6 months: +32.37%, 3 months: +6.54%
Nvidia 6 months: +19.55%, 3 months: +1.22%
Microsoft 6 months: -4.58% etc. 3 months: -8.52%
Meta Platforms 6 months: -11.75% – 3 months: -11.36%
Amazon 6 months: +3.24%, 3 months: +3.16%
Alphabet 6 months: +79.11% – 3 months: +29.72%
Related: Nvidia and AMD in focus ahead of major event
