MS TMT 5.22

SALES COMMENTARY -- Not a product of MS Research and should not be regarded as a research report | FOR INSTITUTIONAL DISTRIBUTION ONLY

AI Tech Beneficiaries reached new all-time highs as NVDA earnings reinforced compute constraints. Indices were muted while upstream AI supply chain, high performance compute, bitcoin miners, and tech momentum pockets outperformed.

Events

MS National Security Innovation Summit: HAWK, ONDS, AVAV, LMT, KRMN, DRS, FEIM, Castelion, Applied Intuition, Astranis, Axiom Space, CesiumAstro, Divergent, Firestorm Labs, Forterra, Impulse Space, LeoLabs, Otto Aerospace, Stoke Space Stratolaunch, Tiberius Aerospace, Vantor, VulcanForms, X-Bow Systems, True Anomaly, Turion Space. 06.15 / NYC.
MS Macro / Micro Markets Forum. 06.23 / NYC.
CRWD post-EPS discussion. 06.04.
AI for Drug Discovery Series with Insilico Medicine. 05.26.
Powering AI & Affordability Regulation, with Ari Peskoe. NYC.
SNOW dinner and breakfast events around SNOW Summit in SF.
Travel & Leisure Conference: LVS, BYD, PENN. NYC.
MiniMax IR and Capital Markets NDR. SF, NYC, FL.
SNDK CEO and CFO NDR. London, Frankfurt, Stockholm, Paris.

Markets

AI Tech Beneficiaries reached new all-time highs, with MSXXAIB up 4%, as NVDA reinforced compute constraints. The broader index backdrop was more muted, with NDX up 0.2% and SPX up 0.17%, as software terminal value debates intensified after INTU and real economy earnings were mixed.

After gains in the upstream AI supply chain across Taiwan and Japan, investors stayed the course: SNDK rallied 10% after opening flat, Tech Momentum gained 4%, high-performance compute names advanced after taking price and signing new contracts, and bitcoin miners gained.

Cyclicals posted only marginal gains in the US as PMIs were inline and headlines lacked Middle East updates. EU cyclicals and benchmarks lagged after Eurozone PMIs missed, French business activity showed the sharpest contraction in five years, and UK flash PMIs missed.

SaaS Software was the worst performing cohort, with MSXXSAAS down 4.3%. TurboTax weakness and surprise guidance cuts drove further de-rating, bringing SaaS to roughly -30% YTD.

TMT Movers

Despite a single-stock fade on NVDA earnings, constructive commentary on compute demand and CPU visibility renewed enthusiasm across the AI complex, especially in pockets that had traded down alongside recent TMT momentum weakness: LITE +11%, CIEN +6%, COHR +5%.

The edge compute narrative drove MSXXCLAW higher, while IBM rallied on quantum headlines. INTU fell sharply after guidance pressure, though TurboTax Live growth remained a highlighted bright spot.

SPOT finished sharply higher after a bullish Investor Day that raised guidance and introduced an AI deal with UMG. Expectations were low after management warned it was not a product day, but investors had been waiting for a catalyst to disprove the AI bear case.

EPS Recaps

WDAY

WDAY rose on cRPO strength and the best net new ACV growth for a first quarter in five years, though there was pushback on timing, durability, slipped deals, one-time contract revenue, and backlog duration. Despite the quarter's strength, the company did not raise the full-year guide and cut second-quarter cRPO and second-half subscription revenue.

TTWO

TTWO beat MSe EPS by almost 80%. Guidance was below consensus but broadly in line with traditional management conservatism. GTA VI remains on track for November 2026, and the stock is expected to grind into launch as awareness builds momentum.

ZM

ZM revenue grew above the high end of guidance, with stable growth at scale and healthy margins. Enterprise NRR improved, though FY27 revenue guidance was flat versus FY26.

DAVA

DAVA declined as the quarter and revised guide fueled the IT services AI bear case. Two-thirds of the guide-down came from US financial services, with broader delays and slower pipeline conversion also cited.

LION

LION OIBDA was inline with MSe and modestly ahead of consensus, with Motion Picture strength more than offsetting lower TV.

800V Power

The 800V discussion focused on NVDA driving adoption of higher-voltage power in data centers. The shift is more energy-efficient and allows for greater compute density, so more GPUs can sit in one rack.

Immediate beneficiaries include power semis such as IFX, ADI, TXN, MPWR, and ON.
Power semiconductor content for IFX could rise materially over the next two years as platforms move from GB300 and Blackwell Ultra toward Feynman.
ADI is highlighted as an AI power beneficiary as data center becomes a larger part of communications revenue and the Empower acquisition strengthens the grid-to-core offering.
BWA is described as an under-appreciated on-site power play competing with Bloom Energy, with 2 GW of capacity that may help close a forecast AI data center power shortfall.

SaaS Pressure

PANW CEO Nikesh Arora argued that AI could compress or destroy meaningful parts of traditional software value because much software is data plus hand-built UI, and AI can dynamically generate more of the interface.

The most exposed categories in that view are analytics software, systems of record such as CRM, SAP, and WDAY, and eventually productivity or creative collaboration tools. Safer layers include chips, memory, networking, data plumbing, SNOW, Databricks, and cybersecurity.

Salesforce was also discussed in the context of Bloomberg reporting that Agentforce messaging is running ahead of broad production deployment. The key investor question is whether the company is selling agentic enterprise momentum while many customers are still using AI for narrower support, information collection, routing, and intake workflows.

AI Capex And Infrastructure

MSFT leadership changes were framed as Satya Nadella creating smaller, flatter, more technical operating groups for the AI era, with more direct CEO engagement on AI metrics, Azure infrastructure, and product ideas.

NOK was highlighted as a hyperscale capex beneficiary, with greater upside above AI and cloud revenue and stronger operating leverage. Management updated optical and IP guidance upward, and the scarcity value of a European networking and connectivity player was noted.

AMD CEO Lisa Su said the CPU market could grow more than 35% annually through 2031, driven by AI inference and agentic AI demand.
AMKR Investor Day was strategically constructive but financially nuanced, with advanced packaging inflection offset by Arizona ramp cost concerns.
MRVL reached an all-time high after reports that Anthropic was in talks to rent servers powered by Microsoft-designed chips.
Foundry and packaging items included SMIC, Hua Hong, Intel EMIB supply chain updates, Samsung's Taiwan strategy, AMD packaging moves, and a new UCLA semiconductor hub backed by META, AVGO, AMAT, GFS, and SNPS.