Morgan Stanley shares way to play A.I. as we enter a golden age
Morgan Stanley offered up some of its top ways to play artificial intelligence as the technology enters a “golden age.” Enthusiasm around AI contributed to a hefty chunk of market gains in the first half, with giants such as Nvidia and Meta Platforms more than doubling. But even after those significant surges, Morgan Stanley thinks the tailwinds are far from over. “We expect the benefits of AI to come in stages over the next decade – hardware and semiconductors have substantial AI exposure today but leadership will change once diffusion into infrastructure/devices shifts that value over time,” the bank said, expecting a third wave fueled by companies building “usable” applications to coincide with infrastructure. Given this setup, Morgan Stanley analysts highlighted 37 stocks as global AI winners with a combined market capitalization of $2.8 trillion. By 2027, the bank forecasts the AI technology industry will roughly triple its total addressable market to $275 billion, driven mainly by semiconductor names expected to hit a $500 billion market. More broadly, AI should become a roughly $3 trillion industry toward the end of the decade. Of the bank’s picks, 50% are headquartered in the U.S., while 21%, 14% and 10% operate in Taiwan, Korea and Europe, respectively. To compile the list, Morgan Stanley searched for areas of the tech supply chain situated for the strongest AI revenue exposure. They also analyzed quality of earnings, future growth and upside potential. “We encourage investors to ‘cast the net wide’ when positioning for AI and to consider factors such as growth, quality, regional trends and specific technology niches, respectively,” the team wrote. A handful of popular semiconductor stocks made the cut, given their integral role in creating graphics processing units and powering many large language models. Many of these names play an integral role the first stage of AI investing, the firm said. Some top U.S.-based picks include Nvidia and Advanced Micro Devices . Nvidia shares have nearly tripled this year, as Wall Street labels the stock a clear AI leader. Shares surged 24% one day in May after the company shared blowout guidance — driven by strong AI demand. Morgan Stanley expects the company’s dominance to continue in the foreseeable future, calling it the “cleanest story” within AI hardware. This merits investor attention even after its first half stock surge and valuation hike. NVDA YTD mountain Nvidia shares in 2023. Despite Nvidia’s dominance, strong execution and ability to aggressively “defend its turf,” Morgan Stanley also remains bullish on Advanced Micro Devices, highlighting its low-cost inferencing segment hinging on its MI300 product launching later this year. “AMDs share of that opportunity seems more tangible and durable than our initial expectations, with solid revenue forecasts from two of the four U.S. hyperscalers – with prospects for a third – at unit levels that materially surprised us,” the bank said. Other areas situated to benefit include custom chip design vendors. Morgan Stanley views Marvell Technology as one of the better positioned names, with shares up more nearly 63% this year and poised for 15% upside from Friday’s close. MRVL YTD mountain Marvell Technology shares this year Taiwan Semiconductor Manufacturing remains another dominant AI leader, with U.S.-listed shares up more than 30% this year. Morgan Stanley forecasts that 13% of revenues by 2027 could stem from AI chip manufacturing. “We view TSMC as a key enabler of future AI semis given its technology leadership, which should enable it to capture > 90% of market share in AI semi chip manufacturing in the coming 5 years, we estimate,” the firm wrote. Many top picks within the second and third waves of AI advancement operate predominantly outside the U.S. Some secondary beneficiaries highlighted in the report include ASML , poised to benefit from growing demand for leading-edge chips and Dell Technologies . — CNBC’s Michael Bloom contributed reporting.
