The New York Stock Exchange is being seen in the Financial District in New York City, on November 18, 2023. (Photo by Mairo Cinquetti/NurPhoto via Getty Images)
Mairo Cinquetti/NurPhoto via Getty Images
Investors have been mulling what a decline in capex spending could mean for the AI trade.
Morgan Stanley see spending growth slowing in the coming years.
It compiled a list of stocks poised to benefit from bottlenecks as capex growth wanes through 2028.
Wall Street pros are saying it’s time to get picky about with which stocks tied to the AI buildout you’re pouring money into as doubts swirl about the durability of the capex boom.
Higher financing costs are dimming the outlook and raising concerns about continued big spending from the AI hyperscalers. Morgan Stanley expects year-over-year capex growth to slow from 60% in 2027 to 14% in 2028. In 2026, hyperscaler capex is expected to will have grown by almost 100%.
But not every AI firm will be affected equally by the slowdown, and some are better positioned than others to weather the storm.
To identify these names, Morgan Stanley’s analysts compiled a list of stocks that have either strong pricing power for their products thanks to supply chain bottlenecks , or those that have an opportunity to expand market share in their respective industry.
“We expect these companies to continue to see upward revenue and earnings revisions from the ongoing AI capex boom even if hyperscaler/neocloud capex revisions moderate,” said Nicholas Lentini, an equity strategist, in an October 15 note.
The bank added that capex levels may not even decelerate as much as investors worry. It pointed out that Wall Street has so far consistently underestimated the scale of compute cycles in the past, like the internet and cloud buildouts leading up to 2000 and 2020.
It also emphasized the importance of bottlenecks and that capex levels exceeding expectations could boost the earnings of AI infrastructure beneficiaries.
“We expect bottlenecks to persist as the race to build data centers continues, with willingness to pay hinging heavily on time-to-market,” Lentini wrote. “An acceleration in hyperscaler and neocloud capex from current levels, or a shift in priorities among incumbent players, could put acute pressure on specific pockets of the supply chain.”
Below are the 24 stocks that Morgan Stanley says are in a prime position to gain from bottlenecks as capex growth moderates in the coming years.
Company name Stock ticker Analyst Bottleneck risk
Caterpillar CAT Angel Castillo Power Bottlenecks
Cummins CMI Angel Castillo Power Bottlenecks
Erocck EROC Angel Castillo Power Bottlenecks
Forgent Power Solutions FPS Christine Yao Pricing Power with Bottlenecks
GE Vernova GEV David Arcaro Power Bottlenecks
Innio INIO David Arcaro Power Bottlenecks
Bloom Energy BE David Arcaro Power Bottlenecks
Dell Technologies DELL Erik Woodring OEM
Hewlett Packard Enterprise HPE Erik Woodring OEM
Everpure P Erik Woodring OEM
Seagate Technology STX Erik Woodring HDD
Western Digital WDC Erik Woodring HDD
Nvidia NVDA Joseph Moore GPUs, Compute
Advanced Micro Devices AMD Joseph Moore CPUs, Compute
Broadcom AVGO Joseph Moore Compute
Micron Technology MU Joseph Moore Memory
SanDisk SNDK Joseph Moore Memory
Lumentum LITE Meta Marshall Optical
Samsung Electronics 005930 KS Shawn Kim HBM Bottlenecks
SK Hynix 000660 KS Shawn Kim HBM Bottlenecks
Vertiv Holdings VRT Toby Okwara Pricing Power with Bottlenecks, Industry Leader
Trane Technologies TT Toby Okwara Pricing Power with Bottlenecks, Industry Leader
Johnson Controls International JCI Toby Okwara Pricing Power with Bottlenecks, Industry Leader
Hubbell HUBB Toby Okwara Pricing Power with Bottlenecks
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