Morgan Stanley sees data centers and infrastructure driving construction

Investing.com -- Morgan Stanley released a chartbook on Wednesday analyzing construction market data and second-quarter earnings themes across its coverage universe.

The firm used a large language model to analyze conference calls from 28 companies, identifying 164 citations about end markets. Of these, 116 indicated positive or improving conditions, seven were stable or mixed, and 41 pointed to weakening or sluggish trends.

Data centers and infrastructure emerged as the strongest areas. The broader U.S. non-residential market showed constructive momentum, while U.S. repair and remodel activity leaned positive.

Residential markets showed weakness. U.S. residential had 83% of citations indicating deterioration, with net improving breadth of -65%. European residential was also negative at -13%.

European non-residential and repair and remodel commentary was more balanced, with net breadth of 20% and 36%, respectively.

The firm noted that cost headwinds offset positive pricing outcomes across the sector. Most companies maintained their guidance.

Morgan Stanley's preferred European names include Saint Gobain, Kingspan, and Rockwool in lightside construction, Heidelberg Materials in heavyside, and Belimo in building products.

The firm's least preferred names include heat pump makers Nibe and Ariston, Geberit due to rich valuation with little earnings growth, and Wienerberger due to earnings risks and slow recovery.

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