Morgan Stanley became the latest brokerage to opine that the selloff in semiconductor and semiconductor-equipment shares has gone too far, raising its investment rating on both sectors to attractive and proposing a handful of names as near-term buys. Both calls rested on the thesis that chip demand remains brisk. "We believe the semiconductor industry is in the sweet spot of the cycle, and although valuations are relatively high, our attractive industry view reflects our belief that solid increases in earnings power and positive surprise potential should support higher stock prices," Morgan Stanley wrote in the semiconductor note. "We also point out that semiconductor stocks generally outperform the stock market when interest rates rise, which should occur in 2005," the brokerage added. Among specific names, Morgan Stanley pointed investors toward stocks it currently rates as overweight, which include Intel ( INTC), Broadcom ( BRCM), National Semiconductor ( NSM) and Nvidia ( NVDA). The brokerage also said the Philadelphia Semiconductor Index "has upside potential to 600-650 this year, and 450-475 should offer solid support." The index closed Wednesday at 487.