Morgan Stanley Recommends Barbell Strategy for AI Investments

Morgan Stanley analysts recommend a barbell investment strategy for the next phase of artificial intelligence development. The approach suggests that investors maintain positions in AI enablers while diversifying into AI adopters across non-technology industries.

Analysts expect demand for data-center compute to significantly exceed supply for several years. However, they advise selectivity regarding chip and infrastructure stocks to create space for software enablers and companies in sectors such as transportation, real estate, and healthcare. For hardware, the bank recommends Nvidia and Broadcom, while infrastructure software recommendations include Microsoft, Snowflake, Datadog, Cloudflare, and Dynatrace.

The bank identifies iRhythm Holdings and Airbnb as companies successfully quantifying productivity gains from AI. Additionally, Morgan Stanley maintains positive ratings on AI adopters including Coca-Cola, GE Aerospace, Procter & Gamble, and Home Depot.