Our Head of U.S. IT Hardware Erik Woodring gives his key
takeaways from Morgan Stanley’s Technology, Media and Telecom
(TMT) conference, including why there appears to be a long runway
ahead for AI infrastructure spending, despite macro
uncertainty.
----- Transcript -----
Welcome to Thoughts on the Market. I’m Erik Woodring, Morgan
Stanley’s Head of U.S. IT Hardware Research.
Here are some reflections I recorded last week at Morgan
Stanley’s Technology, Media, and Telecom Conference in San
Francisco.
It’s Monday, March 10th at 9am in New York.
This was another year of record attendance at our TMT Conference.
And what is clear from speaking to investors is that the demand
for new, under-discovered or under-appreciated ideas is higher
than ever. In a stock-pickers’ market – like the one we have now
– investors are really digging into themes and single name
ideas.
Big picture – uncertainty was a key theme this week. Whether it’s
tariffs and the changing geopolitical landscape, market
volatility, or government spending, the level of relative
uncertainty is elevated. That said, we are not hearing about a
material change in demand for PCs, smartphones, and other
technology hardware.
On the enterprise side of my coverage, we are emerging from one
of the most prolonged downcycles in the last 10-plus years, and
what we heard from several enterprise hardware vendors and others
is an expectation that most enterprise hardware markets – PCs ,
Servers, and Storage – return to growth this year given pent up
refresh demand. This, despite the challenges of navigating the
tariff situation, which is resulting in most companies raising
prices to mitigate higher input costs.
On the consumer side of the world, the demand environment for
more discretionary products like speakers, cameras, PCs and other
endpoint devices looks a bit more challenged. The recent downtick
in consumer sentiment is contributing to this environment given
the close correlation between sentiment and discretionary
spending on consumer technology goods.
Against this backdrop, the most dynamic topic of the conference
remains GenerativeAI. What I’ve been hearing is a confidence that
new GenAI solutions can increasingly meet the needs of market
participants. They also continue to evolve rapidly and build
momentum towards successful GenAI monetization.
To this point, underlying infrastructure spending—on servers,
storage and other data center componentry – to enable these
emerging AI solutions remains robust. To put some numbers behind
this, the 10 largest cloud customers are spending upwards of
[$]350 billion this year in capex, which is up over 30 percent
year-over-year. Keep in mind that this is coming off the
strongest year of growth on record in 2024. Early indications for
2026 CapEx spending still point to growth, albeit a deceleration
from 2025.
And what’s even more compelling is that it’s still early days. My
fireside chats this week highlighted that AI infrastructure
spending from their largest and most sophisticated customers is
only in the second inning, while AI investments from enterprises,
down to small and mid-sized businesses, is only in the first
inning, or maybe even earlier. So there appears to be a long
runway ahead for AI infrastructure spending, despite the
volatility we have seen in AI infrastructure stocks, which we see
as an opportunity for investors.
I’d just highlight that amidst the elevated market uncertainty,
there is a prioritization on cost efficiencies and adopting GenAI
to drive these efficiencies. Company executives from some of the
major players this week all discussed near-term cost efficiency
initiatives, and we expect these efforts to both help protect the
bottom line and drive productivity growth amidst a quickly
changing market backdrop.
Thanks for listening. If you enjoy the show, please leave us a
review wherever you listen and share Thoughts on the Market with
a friend or colleague today.
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