Morgan Stanley's Lisa Shalett calls hyperscalers Amazon, Microsoft, Alphabet, and Meta 'downright cheap,' citing historically low valuations and robust earnings growth amid AI-driven cloud demand.
Microsoft's Azure cloud business is central to the hyperscaler thesis. Shalett's valuation call applies to Microsoft given its 25%+ Azure growth and expanding AI integration, all while the stock trades at a P/E not seen since 2019.
Microsoft's early investment in OpenAI and Copilot integration across Office and Azure positions it to monetize AI more directly than peers, which Shalett believes justifies a premium that the market is currently undervaluing.
While she doesn't provide a price target, her commentary implies potential upside of 20-30% if the stock returns to its historical P/E multiple on forward earnings, aligning with the broader hyperscaler re-rating.
Yes, although Microsoft has been less targeted than some peers, antitrust reviews in the EU and US could cap sentiment. However, Shalett appears to view the fundamental growth as outweighing this risk in the near to mid-term.
Amazon is the leader in cloud infrastructure with AWS, and Shalett's call highlights its discounted P/E relative to historical averages. The stock has pulled back despite AWS accelerating to 19% growth and strong retail cash flows.
Amazon's AWS remains the largest cloud platform, generating high-margin recurring revenue. Shalett notes that its retail segment also provides a diversified earnings base, making the stock's current multiple particularly attractive.
With AWS growth trending above 19% and the stock trading at a relative discount to the S&P 500, Shalett sees room for upward earnings revisions that could drive a mid-term rally.
A sustained rise in interest rates could compress tech multiples further, and any signs of enterprise cloud cost-cutting would challenge AWS growth. Antitrust actions also pose a longer-term threat.
Alphabet's Google Cloud is a key hyperscaler, and Shalett flags its discounted valuation despite accelerating cloud revenue and strong ad cash flows. The stock trades at a low teens P/E, cheap relative to its growth.
Investors have been cautious due to fears over AI disrupting Google's search business and a cyclical advertising slowdown. Shalett argues these concerns are overdone, pointing to the undervalued cloud segment and strong buyback support.
Yes, as cloud becomes a larger profit contributor and AI integration demonstrates resilience in search, she expects the P/E to expand from current lows, pushing the stock toward historical averages.
A sharp decline in digital ad spending due to a recession would hit Alphabet harder than pure-play cloud companies. Additionally, regulatory rulings on the DOJ antitrust case could force structural changes.
Meta is included as a hyperscaler given its massive infrastructure for AI and social platforms. Shalett sees the stock as cheap after a pullback, with strong advertising revenue and AI-driven efficiency gains.
Shalett includes Meta due to its massive global data-center footprint supporting AI training and inference, as well as its core social media operations. Its infrastructure scale rivals that of other hyperscalers.
She doesn't provide a target but suggests the stock could rally 25% if it recovers to its average historical P/E, supported by double-digit earnings growth from AI advertising.
A prolonged ban or regulatory action on TikTok alternatives could boost competition. Also, any renewed increase in reality-labs losses would pressure free cash flow and sentiment.
The Invesco QQQ Trust tracks the Nasdaq-100, heavily weighted in the very hyperscalers and large-cap tech Shalett calls cheap. A rotation into these names would directly lift QQQ.
The top holdings of QQQ—Apple, Microsoft, Amazon, Alphabet, Meta—are exactly the names Shalett targets. Thus, any positive momentum in these stocks is likely to drive QQQ higher.
Yes, for diversified exposure without single-stock risk. However, it includes other large-cap growth stocks like Apple and Tesla that are not part of the core hyperscaler call, diluting the pure play.
Short-term traders could see a momentum bounce as the call gains traction, but a sustained re-rating would align with Shalett's mid-term view on the underlying stocks.
Morgan Stanley's Lisa Shalett calls hyperscale cloud stocks 'downright cheap' following a pullback that left valuations at multi-year lows. She highlights accelerating earnings and free cash flow as catalysts. The call targets Amazon, Microsoft, Alphabet, and Meta as prime beneficiaries of long-term cloud and AI infrastructure growth.
Shalett refers to the dominant cloud-computing providers—Amazon (AWS), Microsoft (Azure), Alphabet (Google Cloud), and Meta—that operate massive, scalable infrastructure to serve global digital and AI workloads.
Valuations have compressed to levels not seen in years, even as these companies continue to deliver double-digit revenue growth and expanding margins. The recent tech selloff ignored their fundamental strength, creating what she sees as a discount.
Shalett presents it as a mid- to long-term opportunity, anchored in secular trends like cloud migration and AI adoption that will drive earnings for years, not just a bounce from oversold conditions.