Morgan Stanley: Large-cap tech stocks like NVIDIA are underweight, possibly due to "technical forces" leading to a rebound

According to Zhitong Finance APP, Morgan Stanley released a research report stating that based on the institutional filings for Q2 2025 (13F), most mega-cap tech stocks are still underweight relative to their weight in the S&P 500 index. Among them, NVIDIA (NVDA.US), Microsoft (MSFT.US), Apple (AAPL.US), and Amazon (AMZN.US) are the most underweight mega-cap tech stocks tracked by the firm. Meanwhile, Intuit (INTU.US), Oracle (ORCL.US), and Dell Technologies (DELL.US) are the most overweight tech stocks tracked by the firm relative to their weight in the S&P 500 index.

Morgan Stanley pointed out that as of the end of Q2, the degree of underweighting of mega-cap tech stocks relative to their weight in the S&P 500 index reached the highest level in the past 16 years. The average gap between institutional active holdings and the weights of the largest U.S. tech companies—NVIDIA, Microsoft, Apple, Amazon, Alphabet (GOOGL.US), and Meta (META.US)—in the S&P 500 index was -140 basis points, further widening from -116 basis points at the end of Q1. Additionally, as of the end of Q2, the average gap for the other ten large tech stocks tracked by the firm was +15 basis points, which was basically consistent with +14 basis points at the end of Q1.

Why are these data points worth noting? Morgan Stanley explained that the firm tracks the holdings data of the 15 largest market-cap tech companies covered by its U.S. tech stock research every quarter. This is based on the average weight of each company among the top 100 active-managed institutional portfolios compared to its weight in the S&P 500 index. Quantitative analysis of historical holdings data shows that, on average, companies with institutional active holdings below their weight in the S&P 500 index tend to have a significantly positive correlation with their future stock price performance after adjusting for market capitalization and better-than-expected earnings. This indicates that on average, when institutional active holdings are far below their weight in the S&P 500 index, the related stocks often experience upward corrections due to "technical forces," and vice versa.

Here is Morgan Stanley's analysis and rating of some important tech stocks.

(1) Apple Morgan Stanley stated that as of the end of the second quarter, Apple's weight in institutional active holdings decreased by 77 basis points quarter-on-quarter to 4.09%, while its weight in the S&P 500 index fell by 117 basis points to 5.75%. Consequently, the degree of underweight narrowed by 40 basis points quarter-on-quarter to -1.66%. Apple is currently the third most underweight mega-cap tech stock at the end of the second quarter, having been the most underweight mega-cap tech stock at the end of the first quarter.

Morgan Stanley pointed out that although the delay of some features in Apple Intelligence did not trigger a wave of iPhone upgrades, Apple's core business performed slightly better than expected in a challenging environment. Reasons for Morgan Stanley's optimism about Apple include: the market's low growth expectations for the next two years; new iPhone models to be launched in 2025 and 2026; undervalued pricing benefits; limited new tariff risks; sustainability of service business growth; and a valuation of only 25 times the expected earnings per share (EPS) for the fiscal year 2027. Morgan Stanley added that although Apple still faces revenue decline risks due to the U.S. Department of Justice's lawsuit against Google, this could become a risk-clearing event. The firm maintains an "Overweight" rating on Apple, with a target price of $240.

(2) Microsoft

Morgan Stanley stated that as of the end of the second quarter, Microsoft's weight in institutional active holdings increased by 73 basis points quarter-on-quarter to 4.7%, but it is still over 200 basis points lower than its weight of 7.1% in the S&P 500 index.

Morgan Stanley noted that Microsoft has fully demonstrated its strong position in software and AI investment returns, and investors are now more focused on the sustainability of growth. The firm believes that Microsoft's earnings growth resilience exceeds market expectations due to the broad impact of generative AI demand, continued growth in non-AI businesses, and better-than-expected profit margins. The firm stated that Microsoft is at the starting point of a new multi-year innovation cycle, with accelerated Azure business and excellent cost control supporting double-digit EPS compound growth. Based on a 29-30 times valuation of 2026 GAAP EPS, the market has underestimated Microsoft's position and earnings growth potential. Therefore, the firm maintains an "Overweight" rating on Microsoft, with a target price of $582.

(3) NVIDIA

Morgan Stanley pointed out that as of the end of the second quarter, NVIDIA's degree of underweight reached -241 basis points, further widening from -148 basis points at the end of the first quarter. Although investor enthusiasm for NVIDIA as an AI leader remains strong, position allocation is still somewhat constrained due to fluctuations related to geopolitical dynamics.

Morgan Stanley added that leading indicators of computing demand remain exceptionally strong, with no signs of slowdown. As supply constraints for rack-level solutions gradually ease and the U.S. government advances the approval of export licenses to China, the firm continues to view NVIDIA as a core quality asset in the current AI-dominated era. The firm maintains an "Overweight" rating on NVIDIA, with a target price of $206.

(4) Amazon, Meta, Alphabet

Morgan Stanley stated that as of the end of the second quarter, the degrees of underweight for Amazon, Meta, and Alphabet were -140 basis points, -36 basis points, and -20 basis points, respectively Morgan Stanley maintained its "Overweight" rating on Amazon, with a target price of $300. The firm stated that Amazon's second-quarter financial report and third-quarter guidance indicate that the company's retail business growth and profitability remain robust amid a turbulent macro environment, which is positive for Amazon's long-term profitability. Although the company's management did not confirm the market's expectations for accelerated growth, this does not mean it will not occur in the future.

Morgan Stanley maintained its "Overweight" rating on Meta, with a target price of $850. The firm noted that Meta is a compounding company in the era of generative AI, with multiple potential growth options. The company has demonstrated how its innovations can lead to more sustained user engagement and revenue growth, even in an uncertain macro environment.

Additionally, Morgan Stanley maintained its "Overweight" rating on Alphabet, with a target price of $210. The firm expects that structural controversies surrounding generative AI will continue to cause fluctuations in the stock's valuation multiples. While the company's fundamentals remain solid and it will maintain discipline in its operating expenses/cost structure, the firm's baseline scenario suggests that Alphabet's valuation multiples will remain within a range (approximately 15-20 times, corresponding to an earnings per share of $10.50 in 2026, or about $160-210 per share), as the market continues to debate the future of search, search competition, and the incremental value of the company's investments in generative AI