The rally in U.S. technology stocks that’s being fueled by hype surrounding artificial intelligence (A.I.) can continue in 2026, according to Wall Street investment bank Morgan Stanley (MS).
Morgan Stanley’s Chief Investment Officer (CIO) Michael Wilson writes in a note to clients that revenue growth expectations for technology stocks remain at “multi-decade highs.”
Wilson also notes that valuations of tech stocks have declined after recent market volatility, and the rout in software stocks has created “attractive entry points” in names like Microsoft (MSFT).
“Periods like last week are not uncommon in major investment cycles,” Wilson wrote in a note. “That said, fundamental tailwinds remain in place for AI…”
His views are likely to be comforting after the technology-heavy Nasdaq 100 index suffered its biggest weekly decline in months over the past week.
Wilson notes that the Bloomberg Magnificent Seven index of leading tech stocks such as Nvidia (NVDA) and Apple (AAPL) now trades at 29 times forward earnings, below its five-year average.
Technology stocks have been volatile as investors worry about the billions of dollars being spent on A.I. with no guarantee of a payoff.
However, Wilson sees opportunities in stocks of companies that adopt A.I. for use in their core businesses rather than those creating the technology and infrastructure that underpins A.I.
Lastly, Wilson highlights the boost technology stocks are getting from a weaker U.S. dollar as half their revenues come from international sources.
In all, Morgan Stanley remains bullish on technology stocks and the A.I. trade this year.
MS stock has risen 31% in the last 12 months to trade at $179.96 U.S. per share.
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