Morgan Stanley Portfolio Solutions revised its model portfolio on Thursday, introducing Broadcom Inc and removing Eaton Corporation PLC from its holdings.
The firm described Broadcom as a diversified technology-infrastructure company with leading positions in custom AI chips, data-center networking and infrastructure software through VMware. Trailing-twelve-month revenue for Broadcom was reported at about $75.5 billion, split into $47.8 billion from Semiconductor Solutions and $27.7 billion from Infrastructure Software. AI semiconductor revenue accounted for roughly $30.8 billion. Adjusted operating income was noted at $50.1 billion, implying an adjusted operating margin of approximately 66.4%.
Morgan Stanley said the Broadcom purchase was aimed at obtaining diversified exposure to multi-year AI infrastructure spending while retaining upside from non-AI semiconductor segments and steady cash flow from VMware’s software business. The firm notes the stock trades at roughly 20 times forward earnings per share.
In evaluating Broadcom’s competitive positioning, Morgan Stanley highlighted the company’s strength in custom compute and networking. The firm pointed to multi-generation programs with Google as well as newer engagements with Meta, OpenAI, Anthropic and other customers. Morgan Stanley said it expects non-AI semiconductor businesses to offer upside potential, with a broader recovery expected later in 2027 as customer inventories work through.
VMware was identified as adding a high-margin, recurring software revenue stream that helps mute cyclical swings in earnings compared with more cyclical semiconductor peers. Morgan Stanley also noted Broadcom is simplifying VMware’s portfolio and concentrating on larger customers, which the firm views as a structural benefit for earnings stability.
At the same time, Morgan Stanley listed specific risks it sees with the Broadcom position. These include the possibility of slower hyperscaler AI capital expenditure; loss of market share to competitors such as MediaTek or Nvidia; and potential setbacks related to VMware integration or a delayed recovery in non-AI semiconductor demand.
On the sell side, the firm removed Eaton from the portfolio. Morgan Stanley said Eaton trades at about 26 times fiscal 2027 estimated earnings per share, a valuation the firm believes already reflects strong outcomes for data-center demand and growth in its Electrical Americas business. Recent results for Eaton showed Electrical Americas margins missed expectations and management lowered guidance for the second quarter, developments Morgan Stanley viewed as reasons to exit the holding.
Morgan Stanley noted the portfolio continues to hold Bloom Energy, which it described as offering more direct exposure to AI data-center power demand. Bloom Energy reported revenue growth of approximately 130% year-over-year in the first quarter, according to the firm.
These portfolio adjustments reflect Morgan Stanley’s preference for exposure to AI-related infrastructure and recurring software cash flows, while trimming a position whose valuation and recent operational signals the firm no longer finds compelling.