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The growth of artificial intelligence is creating a multitrillion dollar opportunity poised to benefit these software and technology stocks, according to Morgan Stanley. “While much of the early discussion on the use of Generative AI since the launch of ChatGPT late last year focused around the consumer opportunity, we see perhaps a more foundational opportunity in the ability for Generative AI to expand the scope of what types of work and business processes can now be automated with enterprise software,” wrote analyst Keith Weiss in a Sunday note to clients. Based on its proprietary survey work, the Wall Street firm projects that 44% of labor will be impacted by AI over the next three year, and $4.1 trillion in associated labor costs. That’s up from an estimated 25% and $2.1 trillion at present. Some of the big winners from this transition include software vendors poised to capture about 5% of the total labor market impact and benefit from the estimated $150 billion uptick in generative AI software spending. Some IT, internet and semiconductor names also look well situated to capitalize. Here are some of Morgan Stanley’s top picks to play the trend: It’s no surprise that 2023’s AI beneficiaries Microsoft , Alphabet and Nvidia made the cut. Nvidia shares have more than tripled this year as investors bet on the promise of its graphics processing units fueling many AI models. The firm’s price target implies about 45% upside for shares. NVDA YTD mountain Nvidia shares year to date “We see the supplier concentration in the high-end training GPU market persisting for the next several years with NVDA retaining its dominant position, but as deployment scales significant opportunities should emerge for those who can provide compelling inference performance at low costs,” wrote analyst Joe Moore. For Alphabet, Morgan Stanley forecasts that every 2% of AI spending could drive 5% upside to the company’s cloud platform, and account for $3 billion in incremental revenue by 2026. Shares have jumped more than 50% this year as the company battles it out with Microsoft for its competing AI chatbot. The price target implies 18% upside from Alphabet’s close on Friday. New AI offerings boost the firm’s confidence in the “durability of long term growth and calm fears around competition” for Alphabet. Within the software space, the Morgan Stanley also highlighted Adobe as a long term beneficiary, noting that generative AI could accelerate EPS growth back toward the mid-high teens. “Generative AI functionality into existing workflows of a broad base of subscribers, enabling stickier customer engagement and opportunity to monetize incremental productivity provided to users,” the firm said. Other potential software winners include MongoDB and Five9 , a provider of call and contact center services. — CNBC’s Michael Bloom contributed reporting
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