As the artificial-intelligence trade enters a new phase, Morgan Stanley strategists are pointing investors toward three hyperscalers—Alphabet, Amazon, and Meta—as capital begins to shift away from semiconductor stocks. The move comes after a period where chipmakers surged while the tech giants faced pressure over rising AI infrastructure costs.
In a July 6 strategy note, Morgan Stanley highlighted that these companies have already endured relative underperformance and may demonstrate greater capital expenditure discipline in the near term. While the note did not formally launch a new stock basket, separate research from internet analyst Brian Nowak provides bullish cases for each firm as the AI opportunity broadens.
Alphabet: From AI Consumer to Chip Supplier
Alphabet is evolving from a major user of AI hardware into a provider of computing capacity. Its tensor processing units (TPUs), originally developed for internal AI services, are now available to external customers via Google Cloud. Nowak raised his Alphabet price target to $415 from $375 in a June 29 note, estimating that third-party TPU sales could generate up to $80 billion in additional revenue by 2028 as clients seek alternatives to scarce Nvidia processors.
“Improving fundamentals are creating a tactical buying opportunity for one of the best positioned AI companies around,” Nowak wrote. However, the risk lies in Alphabet’s rising infrastructure spending, which pressures cash flow before the anticipated revenue materializes.
Amazon: Dual AI Monetization Paths
Amazon offers investors two routes to AI monetization: its AWS cloud business and its vast retail ecosystem. As Amazon brings more data-center capacity online, AWS can capture demand previously constrained by limited supply. Nowak believes AWS growth could accelerate beyond 30% if returns on infrastructure investment improve even modestly. He named Amazon a top pick with an Overweight rating and a $300 price target, calling it the “most underappreciated gen-AI winner” in Morgan Stanley’s coverage.
Meta: Advertising Engine Funds AI Ambitions
Meta stands out as a recovery play, with investor sentiment weighed down by heavy capital expenditure. “Sentiment has troughed,” Nowak said, as reported by Barron’s. Morgan Stanley retains a top-pick rating and a $775 price target, citing Meta’s existing advertising business as a foundation for AI-driven growth. AI already improves content recommendations and ad performance on Facebook and Instagram, boosting engagement and targeting tools.
New products—including Meta AI search, paid subscriptions, business-focused agents, and potential sale of excess computing capacity—could each add $1 to $3 to Meta’s 2028 earnings per share if adoption meets expectations. Meta also trades at a lower forward earnings multiple than Amazon and Alphabet, offering relative value.
The broader market rotation from chips to hyperscalers aligns with recent trends. For context, retail investors are shifting from broad index bets to selective trades, and Magnificent 7 stocks have hit a decade-low valuation premium over the S&P 500, making these names more attractive.
Investors should note that execution risks remain. For Alphabet and Meta, the challenge is converting AI spending into tangible revenue from advertising, subscriptions, and cloud services. Amazon must demonstrate that its infrastructure investments yield sustained growth. As the AI trade broadens, these hyperscalers offer exposure beyond the chipmakers that dominated the first wave.
This article is for informational purposes only and does not constitute financial advice.
