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- An IT spending supercycle is underway and stocks that can ride that wave will beat the market, Morgan Stanley says.
- The bank's analysts pointed to an "unprecedented spike" in tech investment during the pandemic.
- Data era adopters – like Amazon, Disney, and the New York Times – will benefit the most over the long run, they wrote.
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An IT spending supercycle is underway and stocks that can ride that wave will beat the market, Morgan Stanley analysts wrote in a note on Thursday.
Morgan Stanley sees a coming multi-decade "data era" characterized by a surge in tech investment by non-tech companies, on a similar scale to the internet's initial rollout. Such historic IT spending is likely to boost both "enabler" companies that provide tech and "adopter" companies that deploy it well.
The bank's analysts pointed to an "unprecedented spike" in tech investment: IT spending as a share of total investment jumped from 28% to 32% during the pandemic. Likewise, forward-looking data such as surveys of CIO spending plans suggest an increased focus on tech investments in the medium term.
Data era adopters – like Amazon, Disney, and the New York Times – will benefit the most over the long run. A dollar of investment in Morgan Stanley's 41 adopter stocks in 2018 would return $3 today, analysts noted.
Enablers – including Apple, Broadcom, and Nvidia – will gain, too, as there is considerable value left to be realized. Still, analysts said higher relative valuations will likely mean enablers will fare a bit less well than adopters.
From a macroeconomic perspective, Morgan Stanley reckons the tidal wave of tech investment could boost overall productivity, which could be a boon for equity markets outside its adopter-enabler framework. Productivity-driven growth is the stock market's best chance to sustainably maintain today's high valuations, analysts argued.