Morgan StanleyMapping AI’s DiffusionEdward StanleyEquity StrategistMorgan Stanley & Co. International plc+Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other important disclosures, refer to the Disclosure Section. Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to FINRA restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.All information as of January 2nd 2024January 7, 2024 06:00 PM GMT2Source: Reuters, Morgan Stanley ResearchExecutive SummaryThis tech shift is progressing faster than any before it. Companies that best adopt new technology to scale their businesses while maintaining robust barriers to entry accrue most value.1.2024 – the year of the Adopters: The Enablers gained >$6tn of market cap in 2023. Our analysts see less upside for these names near term. In ‘24, we argue that investors focus on the Adopters, a group that rose only c6% in ‘23. If Adopter companies were to lever up to 2x EBITDA for AI investments, they could spend >$3tn. Adopters hold the keys to their own product ramp as well as fundamentals of the Enablers.2.AI rate of change will be important for re-ratings: In 2023, the Enablers where AI was considered Moderately important to the stock debate increased their total market cap by c28%. If this group were to continue to mix shift towards Core To Thesis materiality, it could add another 41% or $900bn to market caps of this group based on 2023 performance.3.Companies enumerating AI spend or gains tend to be rewarded: Companies enumerating AI spend or gains tend to be rewarded: During 2023, only 15% of 316 companies over $10bn market cap gave quantified AI disclosure (i.e. dollar spend, revenue impact, percentage productivity gains). While this may not be entirely attributable to the AI impact, those that did give disclosure outperformed those that didn’t.•AI has established itself as a critical theme, but we are in the early innings of its diffusion. 2024 is the year of the Adopters.Electricity (Moving Assembly Line) favours Automotive AdoptersInternet & iPhone favours Software AdoptersAI favours Enablers Then Adopters1870-18791880-18891890-18991900-19091910-19191920-19291930-19391940-19491950-19591960-19691970-19791980-19891990-19992000-20092010-20192020-20232023-20292030-2040#1?#2?#3?LegendUtilsAutoCommodOilRetailTechTelcoTobacco3Source: Reuters, Morgan Stanley Research1. Adopters Holds the KeysIf this Adopter group continues to experim...
