SKN | Morgan Stanley Says Tech Earnings Are Outpacing Iran War Risks for Stocks

Key Takeaways: 

• Morgan Stanley sees strong earnings revisions supporting equities despite geopolitical tensions.
• Tech, especially AI and semiconductors, is driving broad market profit growth.
• Impact of the Iran conflict is viewed as uneven, not systemic, across sectors.

Earnings Momentum Is Driving the Market

Morgan Stanley believes the current stock market strength is being powered more by earnings growth than by geopolitical risks such as the Iran conflict. Strategists led by Michael Wilson highlighted that earnings revisions for the S&P 500 have moved higher across multiple timeframes. Second-quarter estimates have increased by 2%, while projections for 2026 and the next 12 months are up 3% and 4%, respectively.

This upward trend suggests that corporate profitability is strengthening, providing a solid foundation for equity markets.

Strong Earnings Season Reinforces Confidence

The first-quarter reporting season has delivered particularly strong results, with the median S&P 500 company posting an earnings-per-share surprise of 6%.

According to Morgan Stanley, this marks the strongest performance in four years, reinforcing the view that earnings growth is not only resilient but accelerating.

Tech and AI Lead the Charge

Technology remains the primary engine behind this earnings strength.

Hyperscalers and semiconductor companies are benefiting from rising demand for cloud computing and artificial intelligence infrastructure. These sectors continue to see strong order backlogs and increased capital spending, which are feeding directly into earnings growth.

This trend is echoed by Goldman Sachs, where strategists note that AI infrastructure spending continues to surge, pushing earnings expectations higher across the tech ecosystem.

Broader Market Participation Emerging

While technology leads, the strength is no longer isolated to a single sector.

Earnings revisions are also improving across financials, industrials, and consumer cyclicals, suggesting a more broad-based expansion in profit growth. This diversification reduces reliance on a narrow group of stocks and supports overall market stability.

Iran Conflict Seen as Manageable Risk

Morgan Stanley views the economic impact of the Iran conflict as uneven rather than systemic.

Higher oil prices may increase costs for some industries, but they also act as a tailwind for energy companies, helping offset broader market pressure. The net effect is expected to vary by sector rather than trigger a widespread downturn.

Concentration Risks Still a Concern

Despite the positive earnings backdrop, concentration risk remains a key issue.

A small group of large-cap stocks has driven a significant portion of market returns this year, raising concerns about market breadth and potential vulnerability if leadership narrows further.

Outlook

Looking ahead, Morgan Stanley’s outlook suggests that earnings growth—particularly from AI-driven sectors—will continue to support equity markets.

As long as profit expansion remains strong and broadens across sectors, geopolitical risks like the Iran conflict are unlikely to derail the overall market trajectory.

For confidential insights on equity market trends, earnings cycles, and institutional strategy positioning, connect with the SKN team for professional engagement.