In a recent report, Morgan Stanley delved into the rapidly evolving field of AI integration and its impact on various sectors. This comprehensive study, an update of a survey conducted in the fourth quarter of 2023, highlights changes in AI exposure and materiality across a broad range of stocks, offering a detailed map of the pace of AI change.
According to its findings, 337 stocks with a market value of more than $11 trillion changed their AI impact categories.
This includes moving from categories such as Acceptance to Helper. For example, Morgan Stanley notes that AI is “now more important to 97% of the utilities industry,” indicating significant integration of AI technologies in the sector. This represents a sharp increase from previous levels, reflecting the growing role of AI in improving operational performance. efficiency and eliminating bottlenecks in power supply.
The study also notes that the relevance of AI to investment thesis has increased significantly, with 446 stocks worth $15 trillion seeing changes in this regard. The increased importance is driven by the potential of AI to provide operational efficiencies, increased productivity and innovative solutions across industries.
“AI is becoming increasingly important for investment projects,” the firm writes.
Morgan Stanley emphasizes that measuring the rate of AI change is critical to identifying additional alpha opportunities. Their global mapping efforts, even at this early stage of AI proliferation, are aimed at providing a clearer understanding of these capabilities.
The report identifies two main strategies for creating alpha AI:
1)’Influencing Factors with the Growing Significance of AI”: Stocks reclassified as “core value” AI are up more than 25% year to date. Morgan Stanley suggests investors should continue to pay attention to these factors, as they now show 20% upside potential over Morgan Stanley’s base price target, compared to 14% upside potential for those simply “core to the thesis.”
On an industry basis, utility stocks, which have already delivered 15% year-to-date alpha, stand out for their potential for further growth.
2)’Consumers with strong pricing power‘: Since the release of ChatGPT, companies classified as using AI and having strong pricing power have outperformed companies with lower pricing power by 24%. Morgan Stanley expects this trend to continue, with 135 stocks meeting this criterion.
The report also details significant changes in AI exposure and materiality across sectors. The utilities, materials and industrial sectors have undergone major changes, with a significant number of companies being reclassified into the enabling or enabling/adapting categories. For example, the number of utilities labeled as enablers has increased from about 3% to more than 30% in the past six months.
Morgan Stanley forecasts that AI-driven productivity gains will add about 30 basis points to net income by 2025.
“Our own concept of industry groups focused on improving efficiency through artificial intelligence supports this view, with software and Internet-related groups being the main beneficiaries,” the report said.
“In terms of industry drivers of productivity growth, our framework highlights that service-oriented market segments have greater opportunities to drive efficiency gains through AI,” he adds.
“These groups include software services, consumer services, medical equipment and services, financial services, and media and entertainment. These groups alone account for more than 30% of the expected net return for the S&P 500 in 2025, indicating the potential for gains.”