The Bears Are Starving
The narrative is tired. Tech is overbought. Analysts scream bubble. Yet the tape tells a different story. Morgan Stanley strategists released a note this morning, February 9, suggesting that US technology stocks have significant scope to rally further. This is not a contrarian take. It is a cold calculation of cash flow and compute demand. The market is not repeating the mistakes of 1999. It is pricing a fundamental shift in global productivity. Investors waiting for a catastrophic correction are watching the train leave the station. High valuations are the tax on growth that actually delivers.
The current rally is anchored in operational leverage. Companies have spent the last eighteen months trimming the fat. They are now leaner, faster, and more integrated with automated workflows. Per reports from Bloomberg Markets, the earnings yield on top-tier tech firms remains attractive when adjusted for the current risk-free rate. We are seeing a divergence between companies that just use technology and those that own the infrastructure of the future. The latter are the ones driving the index to record highs.
The Infrastructure Supercycle of 2026
Compute is the new oil. This is the mantra of the current quarter. We are no longer debating if businesses will adopt artificial intelligence. We are measuring how much power they can secure to run it. The bottleneck has shifted from software development to electrical grids and cooling systems. Morgan Stanley points to this physical constraint as a moat. It protects the incumbents. The large-cap tech giants have already secured the capacity. Small players are being squeezed out by the sheer cost of entry. This concentration of power is a feature, not a bug, of the current market cycle.
Revenue growth is accelerating in segments that were dormant two years ago. Edge computing and sovereign cloud initiatives are seeing triple-digit growth in international markets. Governments are no longer content to let data sit in foreign silos. They are building their own. This creates a massive, recurring revenue stream for the providers of the underlying hardware and security protocols. According to data tracked by Reuters Business News, capital expenditure in the semiconductor space has outpaced all other sectors combined over the last six months.
Visualizing the Valuation Gap
The following chart illustrates the Forward Price-to-Earnings ratios for the leading technology constituents as of this morning. While these numbers appear elevated relative to historical averages, they are supported by unprecedented net margins.
Monetary Policy as a Tailwind
The Federal Reserve has entered a period of cautious stability. Inflation has cooled to the 2.2 percent range, and the labor market remains tight but not overheated. This ‘Goldilocks’ environment is the perfect breeding ground for growth stocks. When the cost of capital is predictable, long-duration assets become more valuable. Investors are willing to pay a premium for earnings that are expected five or ten years down the line. We are seeing a massive rotation out of defensive staples and into high-beta tech names. The risk-on sentiment is palpable on the floor of the NYSE.
| Company | Forward P/E (Feb 2026) | Revenue Growth (YoY) | Net Margin |
|---|---|---|---|
| Nvidia | 38.2x | 44% | 52% |
| Microsoft | 32.1x | 18% | 36% |
| Apple | 29.5x | 12% | 28% |
| Amazon | 41.8x | 22% | 14% |
| Alphabet | 24.6x | 15% | 25% |
Market participants often mistake a long rally for a tired rally. This is a cognitive bias. The data suggests that the current expansion is backed by a fundamental re-rating of what a technology company is worth. In previous decades, tech was a cyclical sector. Today, it is the utility of the modern world. You cannot run a hospital, a bank, or a logistics firm without the software provided by these five companies. Their pricing power is absolute. Morgan Stanley’s bullish stance is a reflection of this reality. They are not chasing a trend. They are acknowledging a structural shift in the global economy.
The Technical Breakout
Technicals are aligning with the fundamentals. The Nasdaq 100 has cleared its previous resistance levels with high volume. This indicates institutional accumulation rather than retail speculation. We are seeing large blocks of capital moving back into the sector after the brief January volatility. The Relative Strength Index (RSI) is hovering near 65, which suggests the market is hot but not yet overextended. There is room for another 5 to 7 percent move before we hit true exhaustion levels. Traders are looking at the 22,000 level on the Nasdaq as the next psychological hurdle. If the current momentum holds, we could see that level tested before the end of the quarter.
Short sellers have been decimated. The ‘short interest’ in the semiconductor sub-sector is at a five-year low. This lack of opposition creates a vacuum that sucks prices higher. When there is no one left to sell, the only direction is up. We are in a self-reinforcing loop where higher prices attract more capital, which in turn drives prices even higher. This will continue until the fundamental data changes. So far, the data has only improved. Every earnings report in the last two weeks has beaten expectations on both the top and bottom lines. The guidance has been even more impressive. Management teams are confident, and that confidence is infectious.
Watch the upcoming FOMC minutes on February 18. Any indication that the committee is comfortable with the current rate trajectory will act as a secondary catalyst for the tech sector. The market is currently pricing in a 70 percent chance of a hold, which is already baked into the charts. A surprise dovish tilt could send the Nasdaq into a vertical climb. The key data point to monitor is the 10-year Treasury yield. If it stays below 4.1 percent, the tech rally has a clear runway. The next milestone is the Nvidia GTC conference in March, where the next generation of Blackwell-derived architecture is expected to be unveiled. That event will likely set the tone for the second half of the year.
