Where Investment Themes Intersect and Beat Markets

0:00Stephen Byrd:Welcome to Thoughts on the Market. I'm Stephen Byrd, Morgan Stanley's Global Head of Thematic and Sustainability Research. Today, how our 10 big thematic predictions are playing out and driving global markets. It's Monday, April 20th at 1130 a.m. in New York. Back in January, we laid out four key themes. AI and tech diffusion, the future of energy, a multipolar world, and societal shifts. And we laid out 10 specific thematic predictions about forces shaping 2026. It's really striking to me how quickly the landscape has shifted and how significant these trends have become in just a short period of time.

0:42Stephen Byrd:Even more striking is how these mega-secular themes are converging. AI is driving unprecedented demand for compute and energy. Energy is becoming a strategic priority for nations, and geopolitics is shaping access to both. So let's start with the most important development, the acceleration of AI. Now, we expected strong progress in terms of large language model development, but what we're seeing is really a step change upward in capability. And this is driving an extraordinary surge in demand for compute. Global AI usage has jumped sharply with weekly usage, and we measure weekly usage in terms of how many tokens are used.

1:20Stephen Byrd:Tokens are really a measure of small units of text. It's a fairly standard measure of demand for compute. That token usage has risen by about 250 % just since early January, from 6.4 trillion tokens a week to 22.7 trillion, pushing us into a world where compute demand exceeds supply. This is one of the defining investment stories of 2026, and I see a lot of alpha generation around this opportunity. Now, at the same time, AI is reshaping the labor market. We estimate that automation or augmentation will impact 90 % of occupations, so almost every job will be affected. But the effect is not binary.

2:01Stephen Byrd:So we recently assessed the impacts to employment in five sectors where we believe the impact of AI adoption could be the biggest. And on net, we see a 4 % job loss, driven by 11 % of outright elimination of jobs, 12 % of jobs that were not backfilled, partially offset by 18 % of new hires. So the real story is transformation. AI is changing how work gets done, reshaping roles rather than simply replacing them. But AI does not operate in a vacuum. It runs on energy, and that's the second major shift since January. We now estimate global data center power demand could increase by nearly 130 gigawatts by 2028, with U.S.

2:46Stephen Byrd:potentially facing a 10-20 % shortfall in power availability needed to support that growth. That's why the future of energy is such a central theme. AI growth is directly tied to energy availability, cost, and infrastructure, and increasingly to national policy. And that brings us to the third major development, geopolitics. We certainly did not anticipate the Iran conflict, but it has had a significant impact on energy markets, including supply disruptions that have rippled across global energy systems. And more broadly, we're seeing a global push towards national self-sufficiency. This is a big driver for many years to come in energy, critical minerals, and technology.

3:27Stephen Byrd:And this clearly aligns with our multipolar world theme, where countries are prioritizing control over key economic inputs. This shift is likely to be a major driver of markets, not just this year, but well beyond. These big structural forces are already showing up in performance. The thematic categories that we developed that are aligned with our key themes were up 38 % on average in 2025, outperforming the S &P 500 by 27 percentage points. And year-to-date in 2026, they're still ahead by 12 points. The strongest areas reflect exactly these dynamics. AI infrastructure, energy security, defense, healthcare, and emerging areas like humanoid robotics.

4:11Stephen Byrd:So what's the takeaway from revisiting our predictions? The biggest changes in 2026 are not happening in isolation, but at the intersections of our key themes. AI, energy, and geopolitics are no longer separate stories. They're now deeply interconnected forces shaping the global economy, and understanding these intersections may be the key to understanding markets and generating alpha for years to come. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share thoughts on the market with a friend or colleague today. The preceding content is informational only and based on information available when created.

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