Don't be scared by the Nvidia turmoil and election noise! Morgan Stanley: AI turbulence does not change the main driver of the bull market, long-term outlook remains "extremely bullish"

According to information from Zhitong Finance APP, Lisa Shalett, Chief Investment Officer of Morgan Stanley Wealth Management, stated that management turmoil at Nvidia (NVDA.US) and the Democratic Party's victory in the midterm elections have further intensified market concerns about the artificial intelligence (AI) sector. However, she believes these factors will not shake the core driving force of the current bull market—capital expenditure on AI infrastructure.

She believes that the election results should not be viewed as a rejection of AI investment or data center construction. At the core of voter demands is strengthening AI safety supervision and making the distribution of costs and benefits for data center construction fairer. In an interview, Shalett noted that investors are overly focused on political trends and technology stock volatility, thereby overlooking the long-term core narrative of the market.

“Long-term investors need to firmly grasp the big picture: the underlying logic of the bull market is still firmly rooted in AI capital expenditure and AI-driven industrial transformation. In my view, the broader narrative remains extremely bullish,” she said.

AI concept stocks have driven the broader market higher for most of this year but have recently experienced extreme volatility. On Friday, the Philadelphia Semiconductor Index closed down 3.4%. However, despite adverse shocks related to Nvidia, the index still gained a cumulative 8.1% for the week. Nvidia’s share price plunged 13% this week, triggered by CEO Jensen Huang being embroiled in a scandal and announcing his resignation.

Shalett pointed out that suppliers providing equipment and supporting infrastructure for AI capacity expansion are holding a large volume of backlogged orders, with order schedules already extending into 2027, and for some, even into the first half of 2028. Even if subsequent policies significantly delay project implementation, the substantial impact would likely not be felt until 2028 or 2029.

She further noted that even if regulatory pressure slows down industry expansion and compresses long-term profit margins, it may also reduce the risk of sharp booms and busts or bubble bursts in the industry. A more measured pace of AI investment would help ease inflationary pressures, reduce the burden on credit markets, and also decrease the scale of new equity financing the market needs to absorb. According to Shalett, these changes will not destroy the bull market but may instead extend its duration.

Within the technology sector, Shalett maintains a selective approach, preferring hyperscale cloud service providers and certain software firms. Beyond that, she is also optimistic about opportunities in power grid infrastructure, the industrial sector, financial services, and healthcare.

Regarding overseas equities (including emerging markets), Shalett is likewise positive, viewing them as a diversification tool for portfolios rather than replacements for U.S. stocks.