Morgan Stanley’s Deep Dive into the Rate of Change in AI By Investing.com

In a recent report, Morgan Stanley examined the rapidly evolving AI integration landscape and its impact on various sectors. This comprehensive study, an update to the Q4 2023 survey, points out changes in AI exposure and importance across a variety of stocks and provides a detailed map of the pace of change in AI.

Our findings show that 337 stocks with a market value of more than $11 trillion have changed AI exposure categories.

This includes changing exposure from ‘Adopter’ to ‘Enabler’. For example, Morgan Stanley noted that AI is “now more important to 97% of utilities.” This indicates substantial consolidation of AI technologies in this sector. This represents a dramatic increase from previous levels, reflecting the growing role of AI in improving operations. Increase efficiency and solve power bottlenecks.​​​.

The study also points out that the importance of AI to investment thesis has increased significantly, with 446 stocks worth $15 trillion seeing changes in this regard. AI’s potential to deliver operational efficiencies, increased productivity, and innovative solutions across industries has increased its importance.

“AI is becoming increasingly important in investment cases,” the company wrote.

Morgan Stanley emphasizes that measuring the rate of change in AI is critical to identifying incremental alpha opportunities. Even at this early stage of AI proliferation, their global mapping effort aims to provide a clearer understanding of these opportunities.

The report identifies two primary strategies for generating AI alpha:

One) ‘‘A helper with increasing importance of AI’: Stocks reclassified with “Core to Thesis” exposure to AI have gained more than 25% year-to-date. Morgan Stanley suggests investors should continue to focus on these enablers, as they now show a 20% upside to Morgan Stanley’s base case target price, compared to a 14% upside simply for the “core-thesis.”

By sector, utilities are highlighted with further upside potential, having already delivered 15% YTD alpha.

2) ‘Adopters with strong pricing power‘: Companies categorized as AI adopters with strong pricing power performed 24% better than those with less pricing power following the launch of ChatGPT. Morgan Stanley expects this trend to continue and has identified 135 stocks that meet this criteria.

The report also details significant changes in AI exposure and importance by sector. The utilities, materials and industrials sectors have seen significant changes, with a significant number of companies being reclassified as enablers or enablers/adopters. For example, the number of utilities tagged as enablers has increased from about 3% to more than 30% over the past six months.

Morgan Stanley expects productivity gains from AI to add about 30 basis points to net income by 2025.

“Our proprietary industry group framework focused on AI-based efficiency gains confirms this view, as software/internet-related groups screen as top beneficiaries,” the report said.

“In terms of industry drivers of productivity gains, our framework highlights that service-centric areas of the market hold more significant opportunities when it comes to AI-driven efficiency gains,” he adds.

“These groups include software services, consumer services, medical devices and services, financial services, and media and entertainment. These groups alone account for more than 30% of the S&P 500’s projected 2025 net income, representing potential margin opportunities.”