Four forces are reshaping the economic landscape: AI and tech diffusion, the future of energy, longevity, and a multipolar world.
Executive Summary
This Morgan Stanley Thoughts on the Market episode features Steven Berg and Michelle Weaver outlining the firm's strategic thematic framework for 2026. The core thesis posits that while short-term market "noise" is high, the true drivers of long-term returns are four intersecting global trends: AI & Tech Diffusion, The Future of Energy, the Multipolar World, and Societal Shifts. The discussion emphasizes the widening capability gap in AI between the US and China, the critical bottleneck of power for data centers, and the shift from "longevity" to a broader view of demographic and labor market evolution.
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The "Two Worlds" of AI: A divergence is occurring where US developers use 10x more compute for frontier models, while China focuses on low-cost, practical business applications due to supply constraints. 00:02:13
Systemic Compute Shortage: Demand for computational power is expected to be systematically higher than supply throughout 2026, making compute a "precious resource" at both corporate and national levels. 00:03:33
Energy Bottlenecks & Politics: Beyond a physical 47 GW shortfall, data centers face a "political overhang" as consumers blame them for rising electricity bills, leading to project cancellations. 00:04:03
Multipolar Outperformance: In 2025, the "Multipolar World" theme was the top performer, specifically in critical minerals, AI semiconductors, and defense. 00:09:14
The Labor Evolution: Approximately 90% of jobs will be impacted by AI; however, this is characterized as task augmentation and reskilling rather than wholesale job loss. 00:08:07
Rare Earth Leverage: China may leverage its dominance in rare earth minerals to force technology transfers of advanced US AI capabilities as the gap between the two nations widens. 00:06:41
Detailed Summary by Topic
AI and Tech Diffusion: The Capability Gap
The AI theme has evolved into a "two worlds" scenario. American LLM developers are leveraging 10x more compute than the previous year to produce models of "unprecedented capability." 00:02:13 Conversely, Chinese models are being optimized for low-cost, practical business cases due to a lack of high-end compute. A critical friction point for 2026 is the systemic mismatch where demand for processing power far exceeds supply, turning compute into a strategic national asset. 00:03:40
The Future of Energy: Data Centers and Public Pushback
While power remains a physical bottleneck—with a projected 10-20% shortfall in the US even after innovative solutions—the landscape has shifted toward a political challenge. 00:04:10 Consumers are increasingly pointing to data centers as the cause of rising utility bills. This public sentiment is causing delays and cancellations of planned facilities. Consequently, companies providing off-grid power generation are becoming increasingly valuable as they insulate consumers from grid-related price hikes. 00:05:13
The Multipolar World: Reshoring and Tech Transfer
This theme dominated 2025 and remains central for 2026. It focuses on aggressive US policy: manufacturing reshoring, evolving military spending toward new technologies, and eliminating dependency on China for rare earth minerals. 00:05:47 A major dynamic to watch is the intersection of US compute and China's mineral control; China may use its mineral dominance to pressure the US into transferring advanced AI technology. 00:06:41
Societal Shifts: Demographics and the K-Economy
Replacing the "longevity" theme, "Societal Shifts" now covers the full demographic spectrum, including younger consumer preferences and the "K-economy." 00:07:37 The primary focus is the Future of Work. With 90% of jobs seeing task-level impact from AI, the emphasis is on worker adaptability and a massive 5-year window for reskilling. 00:08:27
Data & Figures
Data Point
Value
Context
Compute Growth
10x
Increase in compute for top American LLM developers vs. last year
Initial Energy Shortfall
47 Gigawatts
Total projected power shortfall for data center growth
Residual US Power Gap
10-20%
Shortfall remaining after "time to power" solutions
Job Impact Rate
90%
Percentage of jobs expected to have tasks augmented by AI
Thematic Outperformance (MSCI)
16%
Outperformance of thematic stocks vs. MSCI World in 2025
Thematic Outperformance (S&P)
27%
Outperformance of thematic categories vs. S&P 500 in 2025
Stories & Anecdotes
The Rare Earth "Squeeze": Steven Berg presents a hypothetical (yet likely) scenario for 2026 where China uses its commanding position in rare earth minerals to force the transfer of American AI model capabilities that they cannot currently build due to compute limits. 00:06:41
The Mid-Atlantic Backlash: Michelle Weaver cites the Mid-Atlantic region as a case study where high data center density has driven up consumer electricity bills, leading to a bipartisan public backlash that is now stopping physical infrastructure projects. 00:04:31
References & Recommendations
Research Papers/Notes:
Morgan Stanley’s Four Key Themes for 2026 - The foundation of the current investment framework. 00:00:14
The Future of Work (2025) - Morgan Stanley report detailing the 90% impact rate of AI on jobs. 00:08:07
People Referenced:
Steven Berg (Global Head of Thematic and Sustainability Research) - Expert on global "Multipolar World" dynamics.
Michelle Weaver (US Thematic and Equity Strategist) - Expert on energy modeling and demographic "Societal Shifts."
Thematic Categories Mentioned:
Critical Minerals, AI Semiconductors, Defense, Nuclear Power, and Off-grid Power Generation. 00:09:14
Quotes
"One of the biggest challenges for investors right now is separating signal from noise... the real drivers of long-term returns tend to move much more slowly and much more powerfully." — Steven Berg (On the importance of thematic analysis) 00:00:27
"Demand for compute is going to be systematically much higher than the supply... Compute becomes a very precious resource both at the company level and the national level." — Steven Berg (On AI infrastructure) 00:03:33
"Public perception has really turned against data centers... local pushback is causing planned data centers to be cancelled or delayed." — Michelle Weaver (On the energy crisis) 00:04:52
"That's not to say that 90% of jobs would be lost by AI... but rather some task or some component of that job could be automated or augmented." — Michelle Weaver (On the future of labor) 00:08:14
Speakers & Credentials
Steven Berg: Global Head of Thematic and Sustainability Research at Morgan Stanley. He leads the firm’s macro-level thematic research.
Michelle Weaver: US Thematic and Equity Strategist at Morgan Stanley. She provides granular analysis on US-specific market trends and energy infrastructure.
Actionable Next Steps
Hedge for Energy Volatility: Investigate companies specializing in off-grid power generation and nuclear energy to mitigate the risks of utility-grid congestion. 00:05:13
Evaluate AI Hardware Exposure: Given the systemic compute shortage, prioritize companies that have already secured long-term access to chips and data center capacity. 00:03:40
Monitor Trade Policy on Rare Earths: Watch for US legislative actions regarding rare earth reshoring, as this will be a primary leverage point in the US-China tech rivalry in 2026. 00:06:41
Prepare for Labor Reskilling: Assess how your industry's specific tasks (within the 90% affected range) are being augmented by AI to identify long-term efficiency winners. 00:08:32
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