Banking giant Morgan Stanley says there’s a better way to play the AI boom, instead of just picking the potential winner of the new tech race.
In a new episode of the Thoughts on the Market podcast, the bank’s head of Applied Equity Advisors, Andrew Slimmon, says investors also tried picking winners and losers during the dot-com era.
But he notes that none of the early market leaders emerged on top.
“The first thing the stock market tried to do was to appoint winners of the internet search race. And it was Amazon, and it was Yahoo and it was Netscape. Well, none of those were the winners. We just don’t know who’s ultimately going to be the tech winner.”
According to Slimmon, a better way to play the market is to look for cheap firms that could potentially benefit from AI. He notes that many companies in the late 1990s and 2000s witnessed productivity gains due to internet adoption, and he believes the same scenario would play out today.
“I think it’s much safer to know that, just like the internet, AI is a technology productivity-enhancing tool. And companies are going to embrace AI just like they embraced the internet. And the reason the stock market doubled between 1997 and the dot-com peak was that productivity and margins went up for a lot of companies in a lot of industries as they embraced the internet.
So, to me, a broadening out and looking at lower valuations, it is in many ways safer than saying, ‘This is the technology winner, and this is the technology loser.’ I think many different industries are going to embrace and benefit from what’s going on.”
In December, Wall Street veteran Ed Yardeni said that the 493 stocks in the S&P 500 could outperform the Mag 7 as they are relatively cheap and could use AI to increase profit margins. And, Goldman Sachs CEO David Solomon said, while AI adoption may be slow, the productivity gains are real.
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