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Morgan Stanley Turns Cautious on Chipmakers as Pricing Power Erodes

July 10, 2026 at 10:23 EDT

Infra & Chips
Finance
Funding & M&A

Lisa Shalett, Chief Investment Officer at Morgan Stanley Wealth Management, urged investors on July 10 to be cautious on semiconductor makers during Bloomberg Television's Surveillance. She said mounting evidence of hyperscalers deploying lower-cost, in-house chip designs is limiting chipmakers' pricing power, and suggested the stocks may have rallied too far on optimism around AI spending.

July 10 · Morgan Stanley Wealth Management

Chipmakers' Pricing Power Under Pressure as Hyperscalers Go In-House

CIO Lisa Shalett warns that cloud giants deploying lower-cost, custom chips are eroding chipmakers' pricing power — and that AI stocks may have rallied too far on a single narrative.

~50%

Estimated cost saving of custom ASICs vs general-purpose parts

~$3T

Estimated global AI investment through 2028

$4.5T+

Nvidia market capitalization alone

"Chipflation": HBM memory prices up ~6× in a year

Rising memory costs pass through to downstream hardware — a squeeze on general-purpose chipmakers.

1×

A year ago

~6×

Now (HBM)

The market rides a single narrative

The Magnificent 7 and related firms dominate the S&P 500 — leaving it dependent on the AI story.

~75%

of S&P 500 returns

~80%

of earnings growth

~90%

of capital expenditure

Circular financing centered on Nvidia — a warning flag

Nvidia invests in OpenAI, which is interlinked with Nvidia, AMD, Microsoft and Oracle — an overheating reminiscent of the dot-com era.

Nvidia → ~$10B → OpenAI → AMD · Microsoft · Oracle ↺

THE UPSIDE VIEW

In-house chips could lower AI inference costs, reduce cloud-API dependence and accelerate edge inference. Hyperscaler shares look relatively cheap.

THE CAUTIOUS VIEW

Weaker pricing power and "chipflation" hit general-purpose chipmakers' profitability. A rotation out of Nvidia, AMD and Broadcom is underway.

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