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Morgan Stanley recommends investing in stocks where AI is becoming a central part of the investment strategy.



Investing in stocks with a growing exposure to artificial intelligence could lead to better performance in the near future, according to Morgan Stanley. The current bull market rally has been driven by the artificial intelligence revolution, with Nvidia as a leading player. Nvidia, the maker of graphics processing units used for AI, has seen a 142% increase in shares year to date after a massive 239% surge in 2023. Morgan Stanley believes that it’s not too late for investors who may have missed out on the AI trade, as there are still opportunities to capitalize on the trend.

In a recent note, Morgan Stanley highlighted a group of stocks called “the enablers,” where artificial intelligence is starting to play a significant role in their business. The investment bank stated that these core-to-thesis enablers have returned more than 100% since January 2023, outperforming moderately exposed enablers that have only returned 25%. This investment strategy of picking stocks with increasing AI materiality is expected to continue working well for investors throughout 2024, according to Morgan Stanley.

Among the stocks mentioned by Morgan Stanley, solar technology company First Solar made the list. First Solar’s shares have surged 59% this year, leading analysts to rate it as a buy with a consensus price target showing 5% downside. Both Morgan Stanley and Goldman Sachs reiterated buy ratings on First Solar earlier this week, citing bullish outlook and potential tailwinds supporting higher average selling prices or capacity expansion.

Another AI enabler highlighted by Morgan Stanley is Broadcom, a semiconductor manufacturer that has seen a more than 25% increase in shares this year. Despite the rally, analysts remain bullish on Broadcom, with most rating it as a buy and seeing a 10% upside potential based on average consensus price targets. Bernstein Research named Broadcom one of its best ideas, citing its cheap valuation compared to other AI play semiconductors and strong AI portfolio benefiting from the ‘inferencing phase’ of Generative AI.

Meta Platforms, the parent company of Facebook and Instagram, was also mentioned as an AI enabler by Morgan Stanley. Shares of Meta have risen nearly 41% this year, with analysts mostly bullish on the stock but only seeing a 3% upside potential based on consensus price targets. Raymond James recently raised its price target on Meta, implying an 11% potential increase in shares. Analysts believe that Meta’s leadership in foundational GenAI building blocks and the ability to pursue multiple GenAI models while minimizing core social business risk support a strong buy rating on the stock.

Overall, investing in stocks with a rising exposure to artificial intelligence could be a rewarding strategy for investors seeking outperformance in the current market environment. Companies like Nvidia, First Solar, Broadcom, and Meta Platforms are seen as AI enablers by Morgan Stanley, offering opportunities for investors to capitalize on the artificial intelligence trend. By following the investment bank’s recommendations and conducting due diligence, investors can potentially benefit from the growth prospects in the AI sector.

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