24 February 2026 | 6:37PM EST Portfolio Strategy Research US EQUITY VIEWS The broadening and narrowing of the AI trade AI capex surprises and spreading fears of disruption risk have injected new volatility into the AI trade in recent weeks. Memory stocks have rallied by an average of 55% YTD while software stocks have plunged by 24%. We expect modest further upside to consensus hyperscaler capex estimates but continue to expect a peak in the capex growth rate later this year. Consensus estimates show hypers ...

Summary of Key Points from Morgan Stanley Research Call Industry Overview - The focus of the call is on the **AI and technology sector**, particularly the implications of AI capital expenditures (capex) and compute demand on large-cap technology companies and the credit market [7][48]. Core Insights - **Compute Demand vs. Supply**: There is a significant mismatch expected between compute demand and supply, with forecasts indicating that demand will exceed supply substantially. For instance, Google executives predict compute needs to be approximately three times the projected compound annual growth rate (CAGR) for NVIDIA [9]. - **AI Adoption and Value Creation**: The total addressable market (TAM) for AI adoption is projected to exceed 25% of the S&P 500's adjusted pre-tax income for 2026, with a nearly even split between software-based AI and robotics [10]. - **Non-Linear Improvement in AI**: AI task complexity is increasing at a non-linear rate, with tools like Anthropic's Claude Opus 4.1 outperforming humans in 48% of tasks. This trend is expected to escalate rapidly in 2026 due to a tenfold increase in computational power for training large language models (LLMs) [14]. Financial Projections - **AI Capex Estimates**: Morgan Stanley has revised its AI-related capex estimates upward for 2026 and 2027, anticipating hyperscaler cash capex to reach over $740 billion in 2026 and exceed $900 billion in 2027 [47][48]. - **Credit Market Outlook**: Investment-grade (IG) bond issuance is expected to hit a record $2.25 trillion in 2026, driven by AI capex financing, mergers and acquisitions (M&A), and rising corporate optimism. This represents a 24% increase from the previous year [25][48]. Company-Specific Insights - **Oracle Corporation (ORCL)**: - ORCL is positioned to benefit from the increasing demand for compute, with a funding plan of approximately $50 billion for 2026. However, the company faces significant cash needs and elevated leverage, with total funding needs estimated at over $150 billion over 2.5 years [36][48]. - The credit outlook for ORCL is cautious due to cash funding needs and lease growth, with recommendations to buy five-year credit default swaps (CDS) as protection against potential credit deterioration [39][48]. Additional Considerations - **Market Dynamics**: The gap between leading technology companies and smaller players is expected to widen, as larger firms leverage their data and investment capabilities more effectively [48]. - **Cost of Intelligence**: Rapid advancements in chip technology are projected to lead to a decline in the cost of intelligence, with average token prices potentially falling by over 70% as the industry transitions from Blackwell to Rubin GPUs [16][48]. Conclusion - The call highlights a robust outlook for AI and technology sectors, with significant investment opportunities driven by increasing compute demand and advancements in AI capabilities. However, companies like Oracle face challenges related to funding and credit risk that investors should monitor closely [48].

Imagine a number, then triple it. You know, that's where I'm at right now. I just can't get my head around an old mandate.How are these companies going to spend $650 billion this year. What aren't. Yeah.Look, I mean, I think everyone highlighted supply constraints and the fact that they didn't have enough capacity, otherwise they would have grown faster. So that sort of justifies the increase in CapEx. But you're right, I think the kind of increases we are seeing, probably Google is the only one who has ear ...

Group 1 - The article does not provide any relevant content regarding the company or industry [1]

Group 1 - The article does not provide any relevant content regarding the company or industry [1]

Market Overview - U.S. stocks experienced a decline at the end of January, influenced by weakness in the tech sector and a significant selloff in commodities, despite solid earnings reports [3][21] - The S&P 500, Dow, and Nasdaq all closed lower on the last trading day of January, with the S&P 500 down 0.43% to 6,939.03 and the Dow down 0.36% to 48,892.47 [5][21] - The Russell 2000 index outperformed, surging 5% for the month, indicating a potential rotation towards small-cap stocks [4][18] Earnings Season Insights - Earnings season has shown solid but not exceptional results, with 74.4% of 133 S&P 500 companies beating expectations, slightly below the four-quarter average of 78% [8] - Q4 earnings are projected to grow by 10.2% year-over-year, with full-year 2026 earnings expected to increase by 15% [8] Tech Sector Performance - The tech sector faced significant pressure, particularly after Microsoft's disappointing cloud growth guidance, which led to a sector-wide selloff [7][21] - The "Magnificent Seven" tech stocks are under scrutiny, with even earnings beats being sold off if guidance is disappointing [7][17] Commodity Market Dynamics - The commodity markets experienced a dramatic reversal, with gold plunging 11.4% to $4,745 and silver crashing 31.4%, marking its worst single-day drop in modern history [9] - The selloff was triggered by profit-taking following a surge in prices earlier in the week, as investors reacted to the nomination of Kevin Warsh as Fed Chair [9][19] Federal Reserve and Economic Data - Kevin Warsh's nomination as Fed Chair has created uncertainty regarding the Fed's future path, as he is perceived as hawkish on inflation but dovish on rates [6][18] - Recent economic data indicated a rise in the Producer Price Index (PPI) for December by 0.5% month-over-month, suggesting the Fed may maintain higher rates for an extended period [13] Upcoming Events and Expectations - The upcoming week features significant earnings reports from major companies, including Palantir, Disney, Alphabet, and Amazon, which will be closely watched for insights into cloud growth and AI capital expenditures [15][17] - The January jobs report is anticipated to be pivotal, with expectations of a +70K increase in nonfarm payrolls, which could influence market expectations for Fed policy in 2026 [16][18]

Core Insights - The demand for leveraged ETFs, particularly SOXL's 3x daily exposure to semiconductors, necessitates a distinct monitoring framework compared to traditional buy-and-hold funds [2] - SOXL has $13.6 billion in assets and a high portfolio turnover rate due to daily rebalancing, which combines sector momentum with structural decay [2] Semiconductor Performance Drivers - Memory pricing power is crucial for semiconductor performance, with Micron showing a 257% year-over-year earnings growth as the memory downturn reversed, dependent on sustained AI infrastructure spending and data center buildouts [3][6] - AI chip capital expenditure cycles influence equipment makers, which make up about 10% of SOXL's holdings, with companies like Lam Research and Applied Materials indicating whether hyperscalers are expanding or pausing fab capacity [4] Rebalancing Costs and Risks - SOXL's structure includes approximately 30% in cash and treasury instruments, which creates a cash drag that reduces upside capture during market rallies [5][6] - The fund's top-ten holdings account for 40% of equity exposure, with Broadcom representing 6.1% and trading at a forward P/E ratio of 38x, indicating significant concentration risk [7]

Group 1 - The article does not provide any specific company or industry insights, focusing instead on the author's personal disclosures and lack of financial positions in mentioned companies [1][2]

Core Insights - The article emphasizes the importance of understanding market dynamics and the potential impact of macroeconomic factors on investment decisions [2] Group 1: Market Analysis - The current market conditions are influenced by rising interest rates, which may lead to increased borrowing costs for companies [2] - Analysts predict a potential slowdown in economic growth, which could affect corporate earnings in the upcoming quarters [2] Group 2: Company Performance - Several companies in the technology sector have reported strong earnings, driven by increased demand for digital services [2] - The healthcare industry is experiencing growth due to advancements in biotechnology and an aging population, presenting investment opportunities [2]

Core Insights - Amazon (AMZN) stock has increased by over 6% in the past four months, indicating a positive trend in its performance [1]. Group 1: Company Overview - The article highlights that Oakoff Investments provides a personal portfolio management service and quantitative research analysis, focusing on balancing growth and value for investors [1]. - Beyond the Wall Investing offers features such as a fundamentals-based portfolio, weekly analysis from institutional investors, and alerts for short-term trade ideas based on technical signals [1]. Group 2: Market Context - The increase in AMZN stock price suggests a solid performance, although the analysis has not been updated since August 2025 [1].