Morgan Stanley strategists indicate that U.S. technology stocks still have room for further gains, supported by the artificial intelligence boom which underpins strong sales prospects.

A team led by Michael Wilson noted that revenue growth expectations for large-cap tech stocks have reached "multi-decade highs," while their valuations have moderated following recent market fluctuations. At the same time, the sharp decline in software stocks has created "highly attractive entry points" for companies such as Microsoft and Intuit Inc.

Wilson wrote in the report, "Volatility like last week's is not uncommon during major investment cycles. Nevertheless, the fundamental tailwinds for AI-enabled companies remain intact, and we believe the trading value of AI adopters is still underestimated."

This perspective offers reassurance to investors who have begun questioning the returns on massive AI investments. The Nasdaq 100 Index experienced its largest weekly decline since December 2025, while shares of companies perceived as potentially disrupted by AI also fell following the launch of some new tools.

Although the overall performance of the "Magnificent Seven" U.S. stocks continues to outperform the broader market, they suffered more severe losses during the tech sector sell-off. Currently, the Bloomberg Magnificent Seven Index's forward price-to-earnings ratio stands at approximately 29 times, slightly below its five-year average.

Despite some bargain-hunting activity emerging on Friday, market movements suggest this rebound may be short-lived. Nasdaq 100 futures edged down 0.7% on Monday.

Analysis from Wilson's team shows that investors haven't yet imposed structural discipline on capital expenditures. He noted that stocks with higher capital expenditure-to-sales ratios continue to outperform the market.

Furthermore, he believes market opportunities remain for companies applying AI to their core businesses, rather than merely those creating technology and infrastructure. Wilson stated that the former typically outperform the market by 1% on the day following earnings announcements.

The team also highlighted the supportive effect of a weaker U.S. dollar, given that approximately 50% of Nasdaq 100 component revenues come from international markets. They simultaneously observed a broader recovery in earnings revisions for semiconductors, software, tech hardware, and the Magnificent Seven.