Morgan Stanley says these stocks will benefit from an A.I. boom

Published Wed, Feb 15 20233:34 PM EST

The current buzz surrounding artificial intelligence is here to stay, creating plenty of trading opportunities as the technology grows, according to Morgan Stanley analyst Shawn Kim. "In every new cycle we see new bubbles, which form when a new innovation comes along, and everyone gets excited about the future. However, the hype around generative AI may be justified and the technology feels genuinely exciting," Kim said in a note on Tuesday. "There are many reasons why this one stands out." Generative AI, which uses algorithms to create new content, has achieved scalability and usage at a far greater pace than other recent tech investing trends, such as the metaverse, cryptocurrencies and lithium stocks, according to the bank's note. Kim said that certain companies in Asia are poised to gain from the AI arms race — particularly those that develop advanced foundry and memory technology, as well as network infrastructure developers. Here are three of Morgan Stanley's Asian stock picks for the AI boom: Taiwan Semiconductor Manufacturing Taiwan Semiconductor Manufacturing , the sole foundry supplier for Nvidia and AMD's high-end graphics processing units, is one of Kim's top AI-beneficiary picks. Morgan Stanley anticipates that increased demand for computer power needed for AI training will lead to rapidly growing markets for graphics and central processing units. In the generative AI world, "the raw material is data; the user of that material is hyperscale data centers; the enabling workhorse is semiconductors," wrote Kim. Baidu China has an "enormous" mass market demand for chatbots, according to Kim, with Baidu and other companies already racing to domestically develop AI capabilities. The analyst noted that Baidu's already stands out for its current advancements in the space. Kim wrote, "The company is completing internal testing of its 'Ernie Bot' in March and aims eventually to merge that with its search engine – a big AI model that the search firm has been working on since 2019." GDS Holdings GDS Holdings, a China-based holding company, is mainly focused in developing and operating high-performance data centers. Its customers include cloud service providers, internet companies and IT service providers across China. It is one of Baidu's primary international data center providers. Kim picked GDS because of the company's position as market leader. GDS "has more balanced exposure to all internet companies," Kim said, adding that its "valuation is more reasonable." —CNBC's Michael Bloom contributed to this report.