This year will be key for companies adopting artificial intelligence (AI), Morgan Stanley (NYSE:MS) analysts have predicted, after 2023 was all about the enablers of the emerging tech.
Following a roughly US$6 trillion market capitalisation gain by those developing AI in 2023, analysts at the US bank laid out expectations in a research note that the key beneficiaries of such models would now be those incorporating AI into their businesses.
“If this adopter group continues to experiment with and integrate AI, these stocks could begin to be priced more actively in 2024,” the bank said.
This includes the likes of American Express Company (NYSE:AXP, ETR:AEC1), Experian (LSE:EXPN) PLC, JPMorgan Chase & Co (NYSE:JPM) and Sony Group, Morgan StanIey added, highlighting those worth over US$10 billion.
Such companies, which were rated as ‘overweight’ by the bank, rose by 6% collectively throughout last year.
Morgan StanIey’s key adopters of AI this year:
- American Express
- Baker Hughes Company
- Experian (LSE:EXPN)
- FUJIFILM Holdings
- JP Morgan
- Kia Corporation
- Regions Financial Corp
- RELX
- S&P Global Inc
- SAP SE
- Schlumberger NV
- Sony Group
- Trade Desk Inc (NASDAQ:TTD)
- UnitedHealth Group Inc (NYSE:UNH)
- Wells Fargo & Company (NYSE:WFC)
- Wolters Kluwer
These companies will be vital in sustaining spending on AI over the coming year, the bank forecast, anticipating an average 27% upside among the group.
“Enablers' consensus upgrades and valuations will depend increasingly on the enterprise IT budgets being deployed by the adopters in 2024-25,” the bank said.
“Adopters now hold the key to their own success and that of the enablers.”
In comparison, companies dubbed ‘enablers’ by the bank, including Alibaba Group (NYSE:BABA), Nvidia Corporation (NASDAQ:NVDA), Darktrace PLC (LSE:DARK) and Tencent Holdings (HKG:0700, OTC:TCEHY), collectively climbed by 111% last year.
"Our analysts see less upside for these names in the near term," Morgan Stanley (NYSE:MS) analysts wrote.
"In 2024, we argue that investors should focus on the adopters.
“Companies that best adopt new technology to scale their businesses while maintaining robust barriers to entry [will] accrue most value."
UBS analysts also shared the view that 2024 would mark a key year for spending on AI, prompting a forecast upgrade by the bank of the tech sector.
Revenues across the industry should increase by 15 times over the coming years, UBS said, growing from US$28 billion in 2022 to US$420 billion come 2027 - up by US$120 billion on previous estimates.
"As a result, we believe AI will remain the key theme driving global tech stocks again in 2024 and the rest of the decade," said UBS tech equity strategist Sundeep Gantori.
"In 2024, the semiconductor and software industries are well positioned to ride the AI wave, with both industries expected to post solid double-digit profit growth and operating margins of more than 30%, in our view.
"The rise of AI should drive further consolidation in global tech, where we believe the 'big will get bigger' trend will benefit industry leaders with deep pockets and first-mover advantages."
While global tech’s valuation of around 25x P/E is not cheap, Gantori acknowledged, falling interest rates and a 16% EPS growth forecast for 2024 "should be supportive", he said.