A Morgan Stanley strategist says the next major wave of value from artificial intelligence may shift toward companies the market has recently repriced.
In a new episode of the bank’s Thoughts on the Market podcast, Morgan Stanley’s Joshua Baer says AI innovation historically follows a predictable pattern in technology cycles.
Baer explained that the first beneficiaries of major computing revolutions tend to be hardware providers before value moves further up the stack.
“I think the best starting place is a reminder that AI is software. And so we see software as a TAM expander. In many ways, even though this is an extremely exciting innovation, it’s following past innovation trends, where first you see value accrue and market cap accrue to semiconductors, and then hardware and devices, and then eventually software and services.”
According to Baer, massive investment in AI infrastructure is already laying the groundwork for the next phase of growth.
“Just given $3 trillion in infrastructure investment into data centers and GPUs, there’s got to be an application layer that brings all of these productivity and efficiency gains to enterprises and advanced capabilities to consumers as well.”
Baer says Morgan Stanley estimates generative AI could dramatically expand the addressable market for enterprise software.
“We estimate GenAI could unlock $400 billion in incremental TAM for software, for enterprise software, by 2028. And this is based on looking at the type of work able to be automated, the labor costs associated with that work, the scope of automation, and then thinking about how much of that value is captured typically by software vendors.”
Last week, JPMorgan Chase executive Sanjay Jhamna said he believes that software’s footprint in the economy will expand rather than contract, and that the shakeout is a golden opportunity to accumulate on dips.
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