Business Insider As the usual AI winners see heavy volatility, forecasters say the next class of winners will be companies that have seen enhanced productivity due to AI.
- The stock market has been in the throes of a rotation this summer.
- Wall Street commentators have gone so far as to say the Magnificent Seven is "dead" as an investment theme.
- Now, forecasters are turning their
attentionto a new group of potential winners: AI adopters. The bull market is broadening out this year, away from the usual tech titans that have powered much the growth and toward sectors that have gotten less love from investors.
Within the AI trade, this means some of biggest players—think hardware titans like Nvidia and hyperscalers like Microsoft—have struggled. In their stead, Wall Street sees a new group as the likely next class of winners: AI adopters.
"The market is beginning to rotate toward quality, a classic mid-cycle transition as the business cycle matures," Mike Wilson, Morgan Stanley's top stock strategist, wrote. "From here, margin expansion is likely to depend less on early-cycle operating leverage and more on AI adoption, reinforcing our quality thesis."
The AI trade has been rocked by volatility lately, with chip makers seeing huge swings and some of the hottest stocks losing steam. Piper Sandler described it as a "mega-rotation" out of the tech sector as investors embrace more defensive trades, while Citi analysts wrote that '"the Mag 7 is dead."
Morgan Stanley said, that as the market enters its new growth phase, the tailwinds are building for companies that can successfully adopt AI as a cost-saving measure and a driver of productivity and growth.
"Our systematic transcript analysis shows that 25% of S&P members cited measurable benefits from AI adoption in calendar 2Q, versus 14% a year ago," Wilson noted.
"We continue to view AI adoption as an important source of earnings growth and operating leverage, with roughly 100 basis points of net margin expansion expected through 2027 related to adoption."
The firm included a large list of stocks it identified in its "AI Adopter Screener." Prominent names include Alphabet, Roblox, Dick's Sporting Goods, CVS, Shopify, Apple, and Constellation Energy Corporation.
"The outlook for AI adopters is becoming increasingly compelling, with the benefits of implementation helping to offset concerns around potential disruption. This is especially important because several industries often viewed as vulnerable—including Transports, Software & Services, and Professional Services—also rank among the more attractive adopter groups
Vanguard also sees bullish investor sentiment shifting from the Magnificent Seven and other prominent Big Tech firms. The main concern is companies' ability to deliver on massive AI investments before the market turns.
"The dominant narrative is that investors are increasingly questioning whether the large investments committed by the AI "hyperscalers"—Alphabet, Amazon, Meta, Microsoft, and Oracle—will deliver sufficient returns amid elevated expectations and intensifying competition," said senior economist Shaan Raithatha.
He added that although his team expects investors to continue rotating into the AI complex and the companies that supply critical components and memory chips, they see that portion of the AI trade remaining volatile, particularly given pressure from Chinese rivals that has recently pushed chip stocks down in the US and Korea.
"The next phase of the AI story is more about whether current investment translates into productivity gains for the broader global economy. History tells us that over time, the benefits of general-purpose technologies spread throughout the economy from the sector that drove the initial innovation," Vanguard wrote.
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