Morgan Stanley lowered its industry view on internet stocks to "in-line" from "attractive," saying growth in the sector needs to accelerate to justify current valuations.
Shares of Facebook Inc and LinkedIn Corp have more than doubled in the last one year, and trade 44 and 97 times forward earnings, according to Thomson Reuters data. Google Inc's shares have risen 56 percent in the same period and trade almost 20 times earnings, data showed.
Morgan Stanley analysts said the rise in the valuation of internet stocks has been due to investors looking at the total addressable market (TAM) opportunity with minimal focus on risks.
"There may not be enough TAM for all of our companies to achieve long-term estimates," the analysts wrote in a client note on Monday.
Morgan Stanley removed Google from its Best Idea List, saying that catalysts have played out.
The brokerage, however, maintained its "overweight" rating on Google and other internet stocks including eBay Inc, Amazon.com, LinkedIn and Facebook.
"While we still believe that our Overweight-rated stocks hold upside, we find overall valuation for the entire group to be unflattering."