Wall Street's AI Chips Are Playing Tug-of-War, and the Towel Is on Fire 🔥

JPMorgan and Morgan Stanley have delivered opposing calls on the same artificial intelligence trade, with JPMorgan telling clients the recent pullback in AI chip stocks is a buying opportunity while Morgan Stanley chief investment officer Michael Wilson argues momentum behind chip shares is fading after they led the broader rally. Both banks continue to back the AI boom, but they disagree on timing and on which part of the stack holds the next leg of gains. JPMorgan said demand for AI chips remains strong while supply stays tight, and it does not expect meaningful new chip capacity to arrive until 2028, a shortfall the bank said gives chipmakers pricing power. The firm also said it prefers semiconductor stocks over the large cloud companies known as hyperscalers and projected global stocks will reach new highs in the second half of 2026.

Wilson and his team see the setup differently, pointing to what they describe as a disconnect between surging AI spending and weakening share prices at the largest buyers. Hyperscalers including Microsoft, Amazon and Meta are set to spend more than ever on AI, with capital budgets forecast at $805 billion in 2026 and $1.116 trillion in 2027, yet their stocks have continued to slip, according to Bloomberg. Wilson said "the momentum unwind is happening in some of the larger companies in the index," and compared the chip rally to silver's sharp climb earlier in 2026, calling both liquidity-driven moves rather than lasting trends. Morgan Stanley expects major US benchmarks to remain under pressure in the near term.

The strain is already visible in the tape. The Nasdaq Composite fell 4.6% in one late-June week, while the chip selloff pushed the Philadelphia Semiconductor Index down 7.9% over the same stretch, even though the index still sits well above its level last September. Chipmaker earnings estimates have also been raised so rapidly that they now sit at historic extremes, according to Morgan Stanley. A strong sales forecast from Micron last month failed to lift chip shares, and investors are now looking ahead to Nvidia's upcoming earnings report for the next signal on whether the AI trade extends, rotates, or rolls over.