Morgan Stanley gives its picks to play the next wave of the AI mania

Published Fri, Jan 5 20249:21 AM ESTUpdated Fri, Jan 5 202411:59 AM EST

Companies that enable the use of artificial intelligence topped the market in 2023, but Morgan Stanley is preparing now for the adopters of AI to take center stage in 2024. "In 2024, we argue that investors should focus on the Adopters, a group that rose only [about] 6% in 2023," wrote equity strategist Edward Stanley in a recent note. "Our analysts forecast an average 27% upside for overweight rated Adopters as AI ramps; something we expect to accelerate through 2024." Enablers key to the AI investment thesis dominated 2023, adding more than $6 trillion in market capitalization as investors piled into chipmaker Nvidia and mega-cap tech titans such as Alphabet and Microsoft . These stocks may continue trending upward, but Stanley views the adopters as critical to the success of the enablers this year. Morgan Stanley estimates that raising leverage on AI investments to two times net debt-to-EBITDA could lead to an additional $3 trillion in spending on enabler hardware and software, accounting for 39% of the group's estimated revenues. Here are some of Morgan Stanley's adopter picks: Morgan Stanley included a handful of banking and financial services stocks in its adopters list. That includes JPMorgan Chase and Wells Fargo . JPMorgan has devoted more than half its "industry-leading" $15.3 billion technology budget to "change the bank" initiatives, while Wells Fargo is working with Google on a virtual assistant using the company's cloud conversational AI platform. Both stocks gained at least 20% in 2023. Credit card issuer American Express is also seen benefiting from AI. Shares rallied 27% in 2023, with Morgan Stanley's price target implying another 6% upside for shares. Amex has already made strides in AI and machine learning to provide real-time credit decisions and improve fraud detection. Beyond financial services, Morgan Stanley also highlighted UnitedHealth Group as the company adopts AI capabilities to offer medical insights and drive efficiencies. In energy, oil companies Baker Hughes and Schlumberger NV have both partnered with AI-focused companies to roll out oilfield solutions. The Trade Desk and Sony Group were also included in Morgan Stanley's AI adopters list. — CNBC's Michael Bloom contributed reporting.