According to reports, top strategists at Wall Street financial giants including Morgan Stanley (ASX: MS) believe that the logic for contrarian positioning and buying the dip in global AI computing power themes and broad technology stocks, which have been heavily hit by recent selloffs, is now taking shape. However, whether tech can achieve a bottom rebound and sustain an upward trend afterward has entered a dual verification period of earnings disclosure season and AI financing conditions.

Michael Wilson, Chief U.S. Equity Strategist at Morgan Stanley (ASX: MS), stated in his latest research report that the valuation adjustment lasting several months for most stocks is nearing its end. The market may complete this round of adjustment quickly, or it could drift lower into November. Investors should prepare to increase equity market risk exposure during this process. Wilson indicated that he still prefers companies with high-quality fundamentals, particularly in areas like capital goods where earnings momentum continues to improve significantly.

This is the latest judgment regarding significant downside versus post-adjustment stock market investment opportunities. The institution's bullish view is largely consistent with that of another Wall Street financial giant, Bank of America, namely that after significant adjustments, valuations of most tech giants—including memory chip leaders and AI computing power theme leaders—have approached historical cyclical lows. Fundamental indicators such as core chip prices and momentum, orders, and earnings trends related to AI infrastructure have not shown any corresponding degree of deterioration. The opportunity for buying the dip after the pullback appears to have arrived.

Currently, new cloud leaders like CoreWeave have exposed the most sensitive financing link in this adjustment. CoreWeave fell 25.21% last week, expanding its year-to-date decline to 14.27%. Its 2031 bond yield briefly touched approximately 16% last week, and its five-year credit default swap (CDS) spread exceeded 1,100 basis points. The implied five-year cumulative default probability from related market pricing exceeds 60%. This probability is a market model result that includes risk premiums and is influenced by recovery rate assumptions.

Nscale, backed by Nvidia, also encountered IPO price pressure—relative to its target valuation of approximately $30 billion, some investors advocated for $16-19 billion, a discount of approximately 37%-47%. This is not yet a completed pricing. Therefore, what the market has recently been re-examining on a large scale is that expensive expenditures on GPU, TPU, ASIC, data center CPUs, and other core hardware components of AI infrastructure, large data center construction, and power-related spending occur first, while revenue waits for power-on, acceptance, and customer activation. The more expensive the financing, the weaker the project's ability to withstand delays and underutilization.

Just as memory chip sector stocks, which benefit from the unprecedented AI infrastructure boom, have recently experienced significant declines, Bank of America's analyst team believes that the market has already priced in a significant slowdown in future price increases, supply expansion, and AI financing pressure in advance. However, the resilience of spot prices, HBM updates and iterations, tiered storage demand brought by the AI agent inference boom, and even the explosive expansion of overall AI computing resource demand can still support strong earnings expansion for AI computing power theme stocks for a considerable period.

It is worth noting that just as the global semiconductor sector plummeted, institutions significantly reduced directional allocation exposure. However, retail investors' long-preferred semiconductor leveraged ETF (the triple bullish leveraged ETF tracking the Philadelphia Semiconductor Index—U.S. stock code "SOXL") saw massive inflows. Potential covering demand and leveraged funds have jointly amplified the market's sensitivity to strong fundamental catalysts during earnings season.

The latest bullish views from Morgan Stanley and Bank of America echo the market's recent movements—tech stocks have shown signs of breathing room, but the damage left by the phased selloff remains evident: last week, the Nasdaq 100 index fell about 5.5%, and the Philadelphia Semiconductor Index fell for eight consecutive trading days, retreating about 11.5% in a single week and directly entering technical correction territory. As of October 16, South Korea's KOSPI index had fallen 17.11% cumulatively this month, with Samsung Electronics and SK Hynix falling 19.74% and 28.38% respectively. As of the Asian market close on October 19, the KOSPI rebounded 1.76%, but Samsung and SK Hynix rose only 1.16% and 0.39% respectively. U.S. stock index futures rose about 1% in pre-market trading, indicating that buying interest is tentatively returning. Memory chip leaders appear to be leading the AI computing power trend after many days.

Morgan Stanley's Wilson Calls for Buying the Dip: Adjustment Nearing End, Prepare to Increase Risk Exposure

Wilson is one of Wall Street's most influential sell-side strategists: he joined Morgan Stanley (ASX: MS) in 1989, holding positions in investment banking, institutional equities, and investment strategy. He currently serves as Chief U.S. Equity Strategist and Chief Investment Officer, and was ranked first in the portfolio strategy category of Institutional Investor's All-America Research Team in 2022, far ahead of other well-known strategists. His influence on the stock market mainly comes from integrating earnings, valuations, interest rates, and institutional positioning into allocation judgments. His positive bullish signals calling for "preparing to add positions" can typically prompt large institutional investors to reassess the opportunity cost of excessive defensiveness.

Morgan Stanley (ASX: MS)'s Michael Wilson stated that as the months-long tech stock correction in some areas of the stock market nears its end, investors should be prepared to increase their portfolio's equity risk exposure. Although the S&P 500 index is only about 2% from its all-time high, market valuations have fallen significantly over the past few months, while the index's internal market breadth has also severely deteriorated. The strategist stated that this market pattern—characterized by outperformance of the so-called quality factor and a significant decline in the S&P 500 equal-weight index—is about to end, thereby providing an favorable window for investors to buy stocks on dips.

Wilson said in a client note: "We recommend that investors prepare for the market to complete its adjustment very quickly, or it could extend into November with a slower drift lower, because in our view, that's when risk exposure should be increased rather than avoided." The strategist maintains a preference for quality stocks and emphasizes that economically sensitive sectors such as financials, industrials, and consumer discretionary have borne one of the main shocks of this round of significant valuation adjustments. He stated that valuation reductions in some market areas have created entry opportunities in sectors with improving earnings per share momentum, such as capital goods and technology.

As shown in the chart above, U.S. stock valuations have fallen significantly over the past few months. Wilson's views may reassure some investors who worry that the recent sharp rise in U.S. Treasury yields and high-yield corporate bond yields could undermine the unprecedented AI investment boom that increasingly relies on new debt financing. Given the important role of the AI infrastructure boom in driving this four-year global stock market super bull market, some market participants said they have seen signs of bubble formation. Goldman Sachs strategists also noted on Monday that investor positioning is becoming increasingly defensive. JPMorgan strategists share the optimistic sentiment of Morgan Stanley (ASX: MS)'s Wilson, stating that the current stabilization of bond yields will be "very helpful" in supporting the stock market.

The broader confidence in the stock market outlook mainly comes from increasingly strong earnings growth prospects driven by AI computing power themes. According to the latest consensus forecasts compiled by Bloomberg Intelligence from Wall Street analysts, overall profits for S&P 500 constituent companies are expected to grow 24.6% year-over-year in the third quarter. Wall Street financial giant Jefferies recently stated that driven by the dual engines of the AI investment boom and AI-related corporate earnings exceeding expectations, the S&P 500 index is expected to surge to 8,000 points by the end of 2026 and further reach 9,000 points in 2027. Jefferies' core logic is clear and powerful: in a cycle where AI-driven earnings growth exceeds historical averages by more than two times, fighting against earnings trends is dangerous. Jefferies' baseline forecast of 8,000 points for the S&P 500 in 2026 is based on earnings per share (EPS) reaching $373 (35% year-over-year growth, far above the market consensus of 29%) and a price-to-earnings ratio of 21.5 times.

A recent research report from JPMorgan shows that early trading of a cooling memory chip cycle at the stock price level can coexist with a sustained strong earnings super cycle in the global AI computing power industry chain, including memory chip components. JPMorgan's Asia-Pacific analyst team led by Jay Kwon is bullish on Samsung Electronics, SK Hynix, Kioxia, as well as Samsung Electro-Mechanics, ISU, and ISC over the next six months, betting on a longer-lasting memory upcycle and continued demand for related substrates, PCBs, and testing. JPMorgan explained from the industry-side strong earnings trajectory why the memory pullback may create opportunities: market concerns about the sustainability of AI capital expenditures may not have been equivalently translated into deterioration in memory orders and earnings. AI inference requires continuous reading of model weights, saving context and KV caches, and handling different levels of data demand through server memory and SSDs. HBM upgrades also consume wafer, packaging, and yield ramp resources, making it difficult for effective supply to quickly keep up with demand.

JPMorgan's semiconductor research report on the Korean stock market shows that macro-level concerns about the sustainability of AI investment are clearly disconnected from bottom-up supply and demand data in the memory industry. Therefore, it views the third quarter as an "expectation reset quarter" and will core overweight Samsung Electronics, SK Hynix, and Kioxia over the next six months, extending to Samsung Electro-Mechanics, as well as ISU and ISC—leading manufacturers of AI PCBs and test sockets respectively. The "duration trade" here bets on a longer-lasting upcycle and higher profits sustained for longer: even if the DRAM/NAND price increase slope slows, as long as HBM, server DRAM, and enterprise SSD demand continues to significantly absorb new capacity and achieve a significant growth trajectory, the rapid profit decline previously priced in by the market may need to be revised. This also explains why memory stocks can decline before earnings peak, yet may rebound early once earnings duration is verified. What determines trading opportunities is the continuously evolving gap between actual earnings paths and expectations implied by stock prices.

Retail Buying Meets Cyclical Bottom-Level Valuations: AI-Driven Tech Stock Counterattack Curve Still Needs Cash Flow Confirmation

Wall Street legendary investor and Co-Chairman of Oaktree Capital, Howard Marks, offers a contrarian perspective on current pessimism with his latest judgment: truly dangerous bubbles are usually accompanied by a loss of vigilance toward risk, and continued discussion of bubbles means investors have not completely abandoned constraints. Current forward price-to-earnings ratios of leading tech companies are significantly lower than during the internet bubble era, which is also related to the fact that these companies have already formed large-scale profits. His judgment also intersects with the latest views of Bank of America and Morgan Stanley (ASX: MS)—whether low P/E ratios constitute an opportunity depends on whether earnings can be sustained. If the market underestimates the duration of high profits, valuations may recover. If earnings forecasts are too high, low multiples may just be a cyclical trap. Howard Marks emphasizes that true bubbles are often accompanied by collective neglect of risk, while the current market's continuous discussion of bubbles indicates that skepticism and constraints still exist.

Capital behavior also shows this split: Goldman Sachs team statistics show that approximately $9.5 billion flowed into leveraged ETFs last week, of which about $7 billion entered the triple long semiconductor ETF—the highly leveraged ETF known as SOXL. Meanwhile, net exposure of U.S. fundamental long-short funds fell to the lowest historical percentile, while gross exposure remained at 213.9%. This means directional bets have contracted, but long and short position sizes remain enormous: once earnings weaken pessimistic expectations, increased longs and short covering may jointly drive a rebound. It is worth noting that leveraged ETFs attracting retail capital reflects a strong willingness to buy the dip but cannot alone prove that long-term institutional capital has completed repositioning.

Bank of America's latest research report provides more specific earnings and valuation evidence for a potential bottom rebound in AI computing power-led tech stocks—based on 2027-2028 market consensus earnings forecasts, Samsung and SK Hynix have P/E ratios of only about 2-3 times, showing cyclical bottom characteristics, but the actual memory market has not yet experienced the price collapse of a traditional recession. The report shows that 16Gb DDR5 spot prices rose 3% to $60.6 per unit for the week and expects related DDR5 contract prices to rise approximately 17% month-over-month in October. Even considering a single-digit year-over-year decline in earnings per share in 2028, Bank of America still expects revenue and operating profit to remain near record levels. In the view of Bank of America's analyst team, the market has overly priced in future earnings declines.

The strong underlying support factors for memory chips and AI computing resources cited by Bank of America include HBM4 introduction and HBM, SOCAMM, and enterprise SSD demand driven by advanced GPU and ASIC updates: model weights, long context caches, and massive concurrent AI inference workloads require different levels of memory and storage, as well as broader AI computing system coordination including CPUs, GPUs/TPUs, and data center high-speed optical interconnects. Even a change in a single GPU configuration cannot be directly equated with a contraction in overall data center storage demand.

The interest rate environment and U.S. Treasury yield environment have also shown marginal improvement. U.S. Treasury data shows that from October 9 to 16, 10-year and 30-year Treasury yields fell 15 and 17 basis points respectively, to 5.09% and 5.43%. In pre-market trading on October 19, Brent crude fell to about $107, and the 10-year yield was about 5.085%. However, JPMorgan pointed out that the recent rise in long-term bonds also includes safe-haven demand triggered by the AI selloff and cannot be directly regarded as the removal of inflationary pressure.

For the AI computing power industry chain and tech stocks, a sustained counterattack requires three pieces of evidence to reinforce each other—AI revenue and AI computing power order fulfillment from large cloud providers and new cloud players supporting capital expenditures, improved debt servicing capacity from new cloud project delivery and collections, and easing of both U.S. Treasury yields and corporate credit spreads. When earnings prove that computing power investment can be converted into profits and cash flow, valuation compression is more likely to become the risk asset buying opportunity Wilson referred to, and institutions with low net exposure will have more reason to increase risk again.