Our Global Head of Thematic Research Ed Stanley discusses how
artificial intelligence is changing and what could be in store
for investors in 2025.
----- Transcript -----
Welcome to Thoughts on the Market. I’m Ed Stanley, Morgan
Stanley’s Global Head of Thematic Research. Today I'll discuss
how understanding AI’s rate of change can generate alpha in the
year of AI agents.
It’s Tuesday, the 14th of January, at 2 PM in London.
Even if you haven't been using artificial intelligence in your
work or home life yet – you’ll doubtless have heard about its
capabilities by now. Tasked, for example, with drafting an
elevator pitch for a 100-page report; it's a tedious task at the
best of times. But using an AI model not only does it become a
breeze, but these models can also generate you a podcast – if you
so wish – through which to disseminate it, and almost in any
language conceivable. But now imagine the algorithm begins
thinking through multi-stage processes itself – planning,
executing – to generate that 100-page report itself, in the first
place. That … is an example of Agentic AI.
As the name implies, this next phase of AI development is where
software programs gain agency, transitioning from reactive
chatbots that we’ve been using into proactive task fulfillment
agents. And this transition is happening now.
Over the past 36 months, we’ve gone from reliable output that can
displace or supplement 5-second or 5-minute tasks, such as
translation or quick summaries, to models that are providing
reliable output for 15-minute tasks, 1-hour tasks – like the ones
that I just mentioned. And each time the skeptics have claimed
that model improvements are slowing down, and thus call into
question the returns on hundreds of billions of dollars that have
been spent on AI infrastructure, the AI research labs manage to
take another leap forward, surprising even seasoned
analysts.
That’s why we think this is such an important trend for 2025. AI
Adopter companies that can leverage these agents will start to
pull ahead of their peers. And as a result, tracking AI’s
evolution in the materiality of companies’ investment cases, we
think, has never been more important.
Since our first AI Adopter survey in January 2024 to our latest
just published in January 2025, we've seen profound shifts in the
thousands of stocks that we cover globally. This ongoing
transformation not only underscores that AI’s diffusion is
advancing rapidly, but that we’re still very much in its early
innings.
To understand the breakneck speed of the AI evolution through the
lens of its impact on the stock markets, we need to wrap our
heads around the concept of “rate of change.” We just published
the third iteration of our AI mapping survey of 3,700 global
stocks under coverage. And it reveals that 585 of those stocks
had their AI exposure or materiality to investment case changed
by our analysts – and that is just versus 6 months ago. And it
impacts around $14 trillion of global market cap.
And this rate of change in AI isn't just a buzzword; it's a
tangible metric driving outperformance. So, if we look back in
the second half of last year, 2024, stocks where our analysts
previously increased both AI exposure and materiality in our last
survey – went on to outperform broader equity markets by over 20
per cent in the second half of 2024. If we apply the same logic
looking forward, where do we think most outperformance is going
to come from? It’s in those same stocks where our analysts have
just upgraded the exposure and materiality to the investment
case.
Beyond this simple screen for AI outperformers we think there are
three other key conclusions from our latest survey. The first is
AI Enabler stocks with Rising Materiality, within which we
believe that Semiconductors, which have outperformed well, might
soon pass the baton to the Software layer in terms of equity
market dominance. Second, Adopters with Pricing Power. These are
companies that adopt AI early and use it to expand their margins
but sustainably, without having to give it back to their
customers. And the third is Financial stocks, in particular,
where AI Rate of Change has been the fastest of any sector in our
global coverage – in terms of the efficiency gains that we think
it can manifest for the share prices.
So all in all, 2025 promises a slew of significant developments
in AI, and, of course, we’ll be here to bring you all of the
updates.
Thank you for listening. If you enjoy the show, please leave a
review wherever you listen to your podcasts and share Thoughts on
the Market with a friend or a colleague today.
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