Morgan Stanley picks global stocks to play a $100 billion AI boom, giving one 40% upside
Demand for AI “enablers” such as power producers, grid operators and data centers is surging, according to Morgan Stanley, and a number of Asian companies are set to benefit. Data center capacity in both Asia and the U.S. is expected to grow at a compound annual growth rate of 20% between 2023 and 2027, the investment bank’s analysts wrote in a May. 15 research note. Meanwhile, Asia’s power needs for data centers is expected to double by 2027. The analysts project that over $100 billion will be channeled toward such “potential investments propel[ling] AI and spur[ring] power demand growth in Asia.” The surge in demand for power “significantly resets the dynamics of power consumption trends; it has implications for the entire power/datacenter supply chain – as well as for the valuation multiples of the companies that directly and indirectly help reduce the bottlenecks in AI adoption,” the analysts wrote. Here are three of Morgan Stanley’s overweight-rated stock picks with more than 35% upside potential over the next 12 months. Tenaga Nasional Morgan Stanley is bullish on Malaysian state-owned utility company Tenaga Nasional and said it was the “largest beneficiary of growth in Asean data centers” among the stocks it covers. Reasons for the bank’s optimism include the company’s large data center pipeline for “key hyperscaler customers” such as Microsoft and Amazon Web Services, as well as its speedier grid connection process. Tenaga is listed on the Bursa Malaysia and trades as an ADR in the U.S. Shares in Tenaga are also included in the iShares MSCI Malaysia ETF (6.7% weight) and Global X FTSE Southeast Asia ETF (2.3%) Morgan Stanley has a target price 17.20 Malaysian Ringgit ($3.67) on the Bursa Malaysia-listed stock, giving it around 36.5% upside potential. Sembcorp Industries Singapore’s power and energy operator Sembcorp Industries is another company on Morgan Stanley’s watchlist. The company operates the “largest solar energy portfolio” in the city-state, the bank’s analyst wrote. “We think this puts Sembcorp in a solid position for negotiating and contracting renewables power purchase agreements (PPA) – and, with the increasing push for green electron sourcing for datacenters, we expect to see an increase in demand for renewable PPAs, further enhancing stable operating cash flows,” they added. Morgan Stanley has a target price of 7.20 Singapore dollars ($5.35) on the Singapore Exchange -listed shares, giving them 36.9% potential upside. Sembcorp Industries shares are also in the iShares MSCI Singapore ETF (2.2% weight) and Cambria Global Value ETF (0.9%). GDS Holdings Another Morgan Stanley favorite is Chinese data center developer and operator GDS Holdings . “We believe GDS’s execution of overseas expansion and its China deleveraging is a textbook self-help case, but this has yet to be appreciated by the market,” the bank’s analysts wrote. So far, GDS has expanded into Japan, Hong Kong and ASEAN (Singapore, Malaysia and Indonesia), they noted, adding that “cloud migration, digital transformation and AI in these markets are driving fast demand growth.” Morgan Stanley has a target price of $13.30 on the Nasdaq-listed stock, which translates to 40% potential upside. — CNBC’s Michael Bloom contributed to this report.
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