By Ketki Saxena
Investing.com -- Taiwan's artificial intelligence (AI) stocks, after a sustained rally, are demonstrating signs of fatigue, as rich valuations have prompted cautionary advice from Morgan Stanley (NYSE:MS). The brokerage firm has urged investors to exercise caution amid stretched valuations, according to a note released on Wednesday.
Taiwan Semiconductor Manufacturing Co., the world's largest chip company and a crucial supplier to Nvidia Corp., has seen its shares decline more than 6% from a peak reached in June. Smaller companies such as Wistron Corp. and Quanta Computer Inc. have experienced even more significant pullbacks, with both firms on track for their worst week on record, coming just days after they hit all-time highs.
Investors have been piling into AI-related shares in order to capitalize on the increasing demand for chips and original design manufacturing. As a result, a gauge tracking AI firms has remained in overbought territory for most of the year, causing concerns about inflated valuations.
Morgan Stanley analysts, including Terence Cheng, noted that although it is challenging to pinpoint a peak in a market driven by AI themes and retail investors, they believe much has been priced in already. Consequently, they advise moving to the sidelines. Along with this recommendation, the brokerage firm downgraded Taiwan stocks to equal-weight.
This development follows a period of Wall Street optimism around AI that had previously given another boost to Taiwan's tech rally. However, the recent shifts suggest that the fervor may be starting to cool off.