Morgan Stanley: The risk of further declines in tech stocks depends on these three factors

LootboxPhobia · 2026-04-01T22:29:48+00:00

Morgan Stanley warns that technology stocks face downside risks, especially against the backdrop of Middle East conflicts and high oil prices. The Philadelphia Semiconductor Index has fallen 20%. Despite a 6% global technology earnings growth, the market still anticipates potential earnings downgrades, with further risks stemming from ongoing conflicts, elevated oil prices, and earnings expectations. Analysts point out that sectors like DDR5 DRAM have pricing power.

LootboxPhobia

2026-04-01 22:29:48

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Investing.com - Morgan Stanley warned in a report Tuesday that tech stocks may face further downside risk, as oil prices make an already challenging macro backdrop even more complex.

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The firm believes the outcome depends on three key variables.

Analyst Shawn Kim noted that since the outbreak of the Middle East conflict, the Philadelphia Semiconductor Index has fallen 20%, and valuations have dropped to 20 times forward earnings.

The index is currently only up 8% from the April 2025 lows, and Morgan Stanley believes this level is consistent with a mid-cycle adjustment.

Despite the selloff, the firm pointed out that global tech stock earnings have actually grown by 6% since the start of the Iran conflict, suggesting the market is pricing in profit downgrades that have not yet happened.

Kim wrote: “Stock price action looks as if earnings expectations are being lowered. The risk of further downside comes down to whether the market is assuming: 1) the conflict is prolonged; 2) oil prices remain at levels far above $100 for the long term; and 3) earnings expectations are lowered.”

The firm cites historical precedents to assess risk, noting that the surge in oil prices in 2008 and 2022 led to about a 30% drop in the SOX index, along with a significant compression in valuations, while the current decline is about 12%.

Kim concluded: “We continue to favor the pricing power of DDR5 DRAM, HDD, NAND flash, and the areas benefiting in SPE capital expenditures, rather than downstream hardware and consumer segments facing margin pressure.”

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