Investing.com — Morgan Stanley warned in a note on Tuesday that technology stocks could face further downside risk, with oil prices complicating an already challenged macro backdrop.
The bank believes the outcome hinges on three key variables.
Analyst Shawn Kim noted that the Philadelphia Semiconductor Index has de-rated 20% since the start of the Middle East conflict to 20x forward earnings.
The index now sits just 8% above its April 2025 lows, levels Morgan Stanley describes as consistent with mid-cycle corrections.
Despite the selloff, the bank noted that global tech earnings are actually up 6% since the Iran conflict began, suggesting markets are pricing in cuts that have not yet materialized.
“Stocks are trading as if numbers are going to be cut,” Kim wrote. “The risk of further downside is if the market assumes: 1) this conflict is extended; 2) oil stays elevated well above $100; and 3) earnings are revised lower.”
The bank drew on historical precedent to frame the risk, noting that previous oil spikes in 2008 and 2022 each produced roughly 30% drawdowns in the SOX index alongside significant multiple compression, compared to the current decline of around 12%.
“We continue to favor higher pricing power in DDR5 DRAM, HDD, NAND flash and SPE capex benefits vs. downstream hardware and a consumer that is facing margin pressure,” Kim concluded.
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