Wall Street Shrugs Off AI Stock Selloff, Says Market Fears Are Overblown

Wall Street believes the recent selloff in artificial intelligence (AI) stocks is more of a market overreaction than the beginning of a deeper correction. Major brokerages, including Morgan Stanley, UBS and HSBC, argue that fears of tighter regulation under a Democratic-controlled US Congress are exaggerated and that the long-term AI investment story remains intact.

The November 5 selloff raised concerns that a shift in political power could threaten the massive investments technology companies are making in data centres and AI infrastructure. However, analysts believe the likelihood of extreme regulatory intervention is low. Any restrictions are more likely to delay individual projects than derail the broader AI investment cycle.

Morgan Stanley described last week's market correction as overdone and suggested that some data centre projects could be postponed from 2028 to 2029 rather than cancelled. Such delays could actually extend the AI capital expenditure cycle, giving supply and demand across the data centre ecosystem more time to rebalance.

The brokerage also believes this could improve the credit outlook for infrastructure companies and support higher leasing rates for computing capacity.

Morgan Stanley has recommended investors "buy the drop", maintaining a positive outlook on major AI hyperscalers such as Amazon, Meta Platforms and Alphabet. It also identified opportunities across the AI supply chain, including semiconductor makers Nvidia and Broadcom, data storage companies Seagate and Western Digital, and optical networking firms Coherent and Lumentum.

UBS analysts said markets had become excessively pessimistic about three major concerns: political risks surrounding AI, credit risks linked to data centre financing and the sustainability of AI-related spending.

Historical market performance also offers reasons for optimism. The S&P 500 has historically delivered an average return of 11.9 per cent over six months and more than 20 per cent over 12 months following daily declines of more than 4 per cent.

Rather than political developments, brokerages believe upcoming corporate events could determine the next direction of AI stocks.

One major trigger will be Nvidia's quarterly earnings on November 17. The chipmaker is expected to report more than 12 per cent sequential growth in data centre revenue. Its results will offer an important indication of whether demand for AI computing infrastructure remains strong.

Another potential catalyst is the anticipated initial public offering (IPO) of AI research company Anthropic. HSBC identified the listing as a key event for markets in the coming weeks.