Morgan Stanley believes recent market fluctuations driven by fears of artificial intelligence disruption could present investment opportunities, arguing that concerns about structural change are being offset by accelerating AI adoption across key industries.
In a client note, analyst Andrew Pauker said that “recent price action tied to AI disruption risk presents opportunities in well-positioned incumbents and AI adopters with pricing power.”
Pauker noted that sectors considered most exposed to disruption account for “a fairly small percentage of S&P 500 market cap (13%),” trade at historically low valuations, and are currently “under-owned,” with positioning near the 20th percentile of net exposure since 2010.
According to Morgan Stanley, many of these companies also demonstrate “high AI adopter concentration and strong pricing power,” supporting their longer-term investment case.
The bank’s review of more than 10,000 earnings releases and conference call transcripts indicated “a steady increase in the share of companies seeing quantifiable benefits from AI adoption.”
Margin expectations are also improving among companies adopting AI while maintaining pricing power, reinforcing the argument for holding such stocks despite ongoing market volatility.
Sector impacts vary, however. Morgan Stanley views banks as “net AI beneficiaries,” citing early signs of productivity improvements. Business services firms with strong brands and proprietary datasets are also seen as well positioned to benefit.
Within consumer finance, the bank acknowledged potential risks linked to job displacement but said “long-term efficiency gains” are likely to outweigh near-term disruption concerns.
In the software sector, Pauker wrote that “GenAI fundamentally expands the capabilities of enterprise software,” suggesting compelling entry opportunities for established providers.
Morgan Stanley added that significant performance divergence across stocks means “a stock-specific approach continues to make sense,” even as broader AI adoption trends support the wider equity market.