A Thematic Look at Market Volatility

Morgan Stanley’s 2026 investment framework centers on four intersecting themes: AI and tech diffusion, the future of energy, the multipolar world, and societal shifts. A distinct "two worlds" paradigm is emerging in AI, where American developers leverage superior compute for frontier capabilities while Chinese firms focus on low-cost, practical business applications. This technological divide creates a systematic mismatch where compute demand far outstrips supply, turning processing power into a precious national resource. Simultaneously, data center expansion faces significant bottlenecks as rising electricity bills trigger public and political pushback, favoring off-grid power solutions. Geopolitical tensions further complicate these dynamics, as China may leverage its dominance in rare earth elements to force technology transfers from the U.S. in response to AI leadership gaps. These thematic strategies demonstrated significant efficacy in 2025, with critical minerals, AI semiconductors, and defense sectors outperforming the S&P 500 by 27%.