MORGAN STANLEY: High-flying tech stocks are headed for a rude awakening — and top executives are making the situation even worse

are less than optimistic about the group's ability to continue outperforming. In fact, the firm argues that tech's recent success may be planting the seeds for its ultimate demise.

Mike Wilson, Morgan Stanley's chief US equity strategist, points to the sector's historically elevated operating margins over the last 12 months. As you can see in the chart below, they recently reached their most extended level since the late 1970s.But something troubling has occurred as these reported margins have soared — a growing number of companies have missed estimates.

The dynamic can be seen playing out in the chart below, which shows the highest percentage of tech companies missed operating-margin forecasts since at least the third quarter of 2015.Morgan Stanley notes that, as of right now, tech stocks are largely priced for perfection. To the extent that companies start to lower their operating-margin forecasts, that could dent overall earnings estimates.

And since bottom-line profit growth has been the single most important driver of share appreciation across theWhat makes the situation even more perilous is that management teams have been so cavalier about margins. Morgan Stanley notes that the term"margin expansion" has popped up in quarterly earnings transcripts at record levels. This is reflected in the chart below.

With all of this established, looking at tech at a more granular level hardly does it any favors. Morgan Stanley notes that three sub-sectors within the industry — technology hardware and equipment , semiconductors and semi equipment , and software and services — are the best performers in the entire market since the Dec. 24 lows."The degree of outperformance of these cohorts adds to our skepticism that tech has adequately price a margin/earnings deceleration," he said.

Finance Finance Latest News, Finance Finance Headlines

Similar News:You can also read news stories similar to this one that we have collected from other news sources.

Former Morgan Stanley Asia chairman: Be prepared to dump stocks ‘very quickly’Stephen Roach, Yale University senior fellow and former Morgan Stanley Asia chairman visited CNBC’s “Trading Nation” this week to talk about the fallout from...
Source: MarketWatch - 🏆 3. / 97 Read more »

Morgan Stanley: With yields falling, these stocks that act like bonds may be a good betMorgan Stanley's strategists see outperformance in stocks that behave like bonds as yields — and economic forecasts — continue to recede.
Source: CNBC - 🏆 12. / 72 Read more »