LVMH shares dropped over 4% Monday after Morgan Stanley downgraded the luxury giant to 'equal-weight' from 'overweight,' citing tariff risks and limited upside. The brokerage maintained its €635 price target but warned the stock's valuation, at 26.1 times forward earnings, sits near its long-term peak.

The downgrade follows a strong re-rating since summer 2025, with over 90% of share price gains driven by valuation expansion rather than earnings growth. While Fashion and Leather Goods—the group's profit engine—showed improved trends at Louis Vuitton and Dior, Morgan Stanley sees earnings skewed to the downside for 2026.

Analysts forecast a 150-basis-point margin hit from forex headwinds and new U.S. tariffs, which LVMH may only partially offset. The Wines and Spirits division remains pressured, with 2026 operating profit expected to fall to €988 million, its lowest since 2010, despite broader group revenue growth projections.