A team of strategists at Morgan Stanley has indicated that excessive selling across various sectors, driven by fears of AI disruption, is currently creating opportunities for investors skilled in stock selection. Investors should focus on what the team defines as "AI incumbents," strong growth stocks, and high-quality targets to capture the dual benefits of current lower valuations and the wave of technological adoption.

The strategy team, led by Andrew Pauker, emphasized that the investment thesis for AI technology adopters with high pricing power is continuously strengthening. "The positive effects driven by AI adoption in the near term can effectively alleviate anxiety about long-term disruptive changes in affected industries and the broader market," Pauker wrote in the report.

Although the software sector is one of the areas hit hardest by investor panic, the bank's strategists suggest the market appears to be assuming that incumbent companies will struggle to effectively leverage AI technology for innovative breakthroughs. Conversely, the team believes AI will expand the total addressable market for enterprise software. Morgan Stanley analysts view companies like Microsoft (MSFT.US), Intuit (INTU.US), and Atlassian (TEAM.US) as having reached "attractive entry points."

The Morgan Stanley team also noted that, with the ongoing evolution of AI technology, the banking sector is poised to be a net beneficiary, as the technology is expected to gradually enhance productivity and profitability levels. The team further identified Citigroup (C.US), Bank of America (BAC.US), State Street (STT.US), and Truist Financial (TFC.US) as among the "most defensive" picks in their analysts' view.

Further analysis by the team points out that within other sectors, consumer finance stocks are also set to become net beneficiaries of AI, where short-term industry disruption effects are likely to be offset by long-term efficiency gains. In the insurance sector, while AI can gradually optimize brokerage operations, disruptive change is difficult to achieve in the short term due to complex contract terms, regulatory frameworks, and compliance requirements.

In the payments and fintech space, the bank's strategists consider Mastercard (MA.US) and Visa (V.US) to be net beneficiaries of both AI and agent commerce. "The current situation is typical of a major investment cycle," Pauker and colleagues wrote in the report, "where the amplitude of volatility usually expands significantly, and intermittent market phases occur during which the market simultaneously questions the rationale behind the pace of capital expenditure and which specific market segments might face disruptive risks."