This edition of Market Factors begins with coverage of an in-depth Morgan Stanley report identifying opportunities in beat-up technology sectors. We move on to a discussion of the most viral research report of the week and then progress to research on boozing chimpanzees.
AI
Software, business services stocks offer opportunity
There are 16 analysts credited in Morgan Stanley’s 88-page research report “AI Disruption Debate: Our Analysts Weigh In”. The analysts argue that the sectors with the greatest volatility recently are actually those adopting AI at the fastest rate, and now some of the stocks are cheap, under-owned, have pricing power, and set to move significantly higher.
For Morgan Stanley, AI is not just about a glorious future – they are measuring benefits now. Ongoing analysis of earnings calls for over 10,000 companies found that 30 per cent of companies classified as AI adopters were able to quantify positive effects from AI. This is up from 24 per cent in mid-2025 and 16 per cent at the end of 2024.
The team screened all stocks considered AI adopters that were down more than 10 per cent year to date, are central to the theme, enjoyed neutral-to-high pricing power and had an “overweight” rating.
The stocks are Accenture (ACN-N), Amazon.com (AMZN-Q), AppLovin (APP-Q), Axon Enterprises (AXON-Q), Blackstone Inc. (BX-N), CCC Intelligent Solutions Holdings (CCC-Q), Capital One Financial (COF-N), Salesforce Inc. (CRM-N), Duolingo Inc. (DUOL-Q), Hubspot Inc. (HUBS-N), Iqvia Holdings Inc. (IQV-N), iRhythm Technologies Inc. (IRTC-Q), McGraw Hill (MH-N), Monday.com (MNDY-Q), Microsoft (MSFT-N), Navan Inc. (NAVN-Q), Nasdaq Inc. (NDAQ-Q), ServiceNow Inc. (NOW-N), Omada Health Inc. (OMDA-Q), Roblox Corp. (RBLX-N), Sailpoint Inc. (SAIL-Q), Shopify Inc. (SHOP-Q), Snowflake Inc. (SNOW-N), S&P Global Inc. (SPGI-N), Atlassian Corp. PLC (TEAM-Q), ServiceTitan (TTAN-Q), Twilio Inc. (TWLO-N), Unity Software (U-N), Uber Technologies Inc. (UBER-N), UnitedHealth Group Inc. (UNH-N), Vertex Inc. (VERX-Q) and WIX.com (WIX-Q).
In the case of the software stocks, the analysts believe the market is currently underappreciating the ability of incumbent software companies to participate in the AI revolution by designing new products and utilizing existing customer relationships. The last time software stocks were this cheap was 2014-2016, when the adoption of cloud computing was viewed as a threat. That proved a lucrative buying opportunity for many of them.
In the case of consumer finance, the rules-based, data-heavy nature of fraud detection, underwriting and loan servicing makes AI ideally suited for increasing efficiency and profit margins. In business services, where stocks have sold off hard, Morgan Stanley believes they are significantly protected from AI by strong brands and proprietary data.
Viggo Mortensen and Kodi Smit-McPhee star in John Hillcoat's The Road, based on Cormac McCarthy's Pulitzer Prize winning novel.Macall Polay
Chatter
Citrini causes a stir
Monday saw a post by Citrini Research, the hugely popular investing Substack account, laying out a dystopian scenario where AI takes over the economy and all the displaced employees were left unable to consume. An economic version of The Road, in other words.
The post was greeted with universal derision in the finance corners of social media. Ritholtz Wealth Management’s Josh Brown started off his Tuesday by sarcastically asking “Which creative writing project will tank the stock market today?”
Recent market volatility has coincided with a rise in AI skepticism. I’m still in the AI-is-a-really-big-deal camp and expect huge changes in the white-collar professions specifically. It will, however, take a long time.
This is the usual pattern for technological revolutions. A bubble forms, bursts, and then is followed by the slow but pervasive dissemination of a technology into the economy. So even if current AI stocks get crushed, this doesn’t stop a potential AI revolution from happening.
The new AI tools announced by Anthropic and other companies are probably limited and make mistakes. I don’t even think we are out of the first inning of the AI revolution that will take decades to play out.
On the other hand I thought graphene was going to take over the world in 2013 and I was also convinced in 2017 that voice assistants were going to be a staple of both home and work life. (I still believe the latter one by the way. Voice commands combined with AI can now be used on spreadsheets which is what I was looking for). Making predictions is hard, as Yogi Berra once said, particularly about the future.
A male chimpanzee feeds in Kibale National Park tropical rain forest in Uganda.James Akena/Reuters
Diversions
Chimpanzees are drunk all the time
It’s a myth that Koala bears are basically stoned all the time from eucalyptus leaves but apparently chimpanzees spend a lot of their time intoxicated.
Graduate students from the University of California-Berkeley and the University of Michigan went to great lengths to collect chimpanzee urine because, as a Popular Science article noted, breathalyzers aren’t much good for apes. They found traces of a substance called ethyl glucuronide, implying the equivalent effect of two alcoholic drinks on humans.
The chimpanzees are eating fermented fruit, not building moonshine stills like Hawkeye and Trapper John on M*A*S*H* (I’m showing my age with that reference. Younger generations can Google it).
The scientists studied urine from 19 different chimps and found indications of alcohol in 17 of them. The chimps must be boozed a lot. Future studies are planned to assess the effects of alcohol on chimpanzee socialization and I can’t help picturing an ape in a Fred Flintstone costume yelling at his mate after eating one too many rotten mangos.
The essentials
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Globe Investor highlights
Jamie McGeever attempts to answer: Why are doomsday posts such as the one from Citrini having such a deep impact on market psychology?
David Berman looks at a new way to fine-tune your asset mix between stocks and bonds
A Scotiabank strategist on improving market breadth and why active managers should be outperforming index investors so far this year
Quick Hits
A post on George Mason economics professor Tyler Cowen’s site Marginal Revolution asks “Why don’t American companies hire more in Canada?” The post is primarily an email from a reader who writes “The Canadians I know in [law and technology] fields are typically on par with the Americans, but doing the same work at half the price.” I had not heard this before, the “working at half the price” part.
Anthropic has scared the bejeepers out of another technology subsector with the release of Claude Code Security last week, sending cybersecurity stocks tumbling. BofA Securities analyst Madeline Brooks thinks AI could enhance the product offerings but not replace current cybersecurity companies but it’s still early days. Security software firm Crowdstrike Holdings is down 25 per cent year to date.
Morgan Stanley analyst Devin McDermott downgraded U.S. LNG stocks to “cautious” from “in-line”. There’s no mention of Canadian LNG players but it can’t be great news for them.
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