Morgan Stanley dates the AI sell-off's last leg as $158 billion of financing lands

The Fed held, the market priced the next hike

Federal Reserve policymakers left the benchmark rate at 3.75-4% on October 28↗, a 10-2 vote with Governor Lisa Cook and Cleveland Fed President Beth Hammack dissenting for another quarter-point increase ¹. Traders are now more confident of a December hike, all 100 economists polled by Reuters expect one, and even CITIC Securities, China's biggest brokerage, still sees a 25 basis point move ¹². The tightening path is priced, and the AI buildout's new debt arrives straight into it.

Wilson's three-to-four week clock

Mike Wilson, Morgan Stanley's▼−3.44% — Morgan Stanley, down 3.44 percent today chief US equity strategist, calls the equity correction that began in June a final-stages affair↗ with one more leg down: tactical S&P 500 downside to 7,100-7,200, then a rally toward his 8,000 year-end target ². He expects AI concerns to peak over the next three to four weeks as a surge of AI debt issuance is absorbed ².

Semiconductors, where 96% of stocks are down more than 20% since June, could drop a further 10-15% before support around mid-November ². Alphabet▼−1.68% — Alphabet, down 1.68 percent today slid nearly 10% after hours this week on a search miss and a $9 billion cash burn, so the pressure is not theoretical ².

The paper is landing now

The supply Wilson wants absorbed showed up this week. Bank of America▼−2.24% — Bank of America, down 2.24 percent today, Blackstone▼−1.30% — Blackstone, down 1.30 percent today, Citi▼−3.16% — Citi, down 3.16 percent today and Morgan Stanley will provide $63 billion through a special purpose vehicle that buys Broadcom's▼−6.21% — Broadcom, down 6.21 percent today AI chips and networking gear and leases them to AnthropicPVT$350B — Anthropic, private, latest valuation $350B, which filed a potentially record-breaking IPO prospectus on Monday↗ ⁴.

The prospectus shows revenue of $787 million in the second quarter of 2025↗ against $11.6 billion in the same quarter this year, an operating profit of $974 million, and a $66.3 billion quarterly net loss carried by a convertible-debt accounting charge; a November debut is possible ³. Meta▼−0.56% — Meta, down 0.56 percent today, which burned $2.12 billion of cash in the third quarter, its first negative free cash flow in over a decade, launched about $35 billion of stock offerings↗ and plans an at-the-market program of up to $60 billion from early 2027 ⁵³.

Inside one bank

Morgan Stanley is arranging the first-lien financing on the Broadcom vehicle ⁴ in the same week its strategist tells clients AI fear peaks. An Oct 25 Inference report counted $9 billion a week of default insurance being written on AI debt↗; the arrangers collect fees on the way in, and the buyers hold the paper through the window Wilson dates ⁴. Both sides of that trade now work for the same firm.

The other side of the trade, and the dated tests

Wilson's is a buy-the-dip map, not a doom call. The S&P 500 has gained about 17% on average in the 12 months after a midterm election, third-quarter earnings growth is running near 27%, and he expects chips, financials, consumer cyclicals and autos to lead the recovery, with semiconductors offering the most rebound potential ².

The risk is timing: a slower catalyst stretches the bottom out ². Watch three dated things: chip support around mid-November, data center credit spreads as the SPV prices, and the Fed's December 9-10 meeting, where a hike is expected and, on Wilson's math, a reversal would come after ².