Morgan Stanley's Simonetti: Still not known which companies will be effected negatively by AI
Summary
- The "AI Trade" is shifting phases: moving from pure-play technology creators to "AI Adopters" in the broader economy.
- Expects multiple market corrections throughout the year due to valuation and macro noise (like hot PPI), but maintains an "extremely positive" outlook for year-end.
- Explicitly Overweight Emerging Markets due to attractive valuations, while remaining cautious on Europe due to the ongoing conflict in Ukraine and delayed rebuilding efforts.
- Rejects the narrative that AI will "kill" the software sector; argues that large incumbents with proprietary data will integrate AI to expand margins rather than be displaced.
Trade Ideas
"If there are giant companies with proprietary technology, strong customer relationships, competitive advantage, they are going to be able to adapt and... use AI for their model expansion." The market fears AI will replace software services (SaaS). Simonetti argues the opposite for "Giant" incumbents. These companies (System of Record) own the data and the customer workflow. They will not be displaced; they will upsell AI features. This suggests buying the dip on high-quality, large-cap software. Long Large-Cap Quality Software (Tickers inferred as standard "System of Record" giants). Disruption from agile, AI-native startups undercutting pricing.
Katerina Simonetti
Morgan Stanley Private Wealth Management
"Are we expecting that... we are going to have not one, but maybe several market corrections this year? Absolutely. But our positive towards the year end is still extremely positive." Volatility is expected and should be treated as a buying opportunity rather than a signal to exit. The macro trend remains upward despite short-term inflation data (hot PPI) or valuation concerns. Buy the dip on broad indices. Inflation re-accelerating significantly, forcing the Fed to hike rates further.
Katerina Simonetti
Morgan Stanley Private Wealth Management
"We see the biggest adoption, the biggest disruption happening outside of tech, specifically in healthcare, in financials, in industrials and in materials." The market has crowded into AI hardware and infrastructure (First-Order). The Second-Order trade is identifying the *beneficiaries* of this technology. These "Old Economy" sectors will use AI to compress costs and expand margins, leading to earnings beats that are not yet priced in compared to the premium on Tech. Long AI Adopters (Healthcare, Financials, Industrials, Materials). Implementation lag; if AI integration costs outweigh immediate productivity gains.
Katerina Simonetti
Morgan Stanley Private Wealth Management
"Valuations are extremely attractive on the international side... [we are] overweight emerging." While the US market is expensive, Emerging Markets offer a valuation discount. Simonetti distinguishes between "International" (Europe) and "Emerging." She avoids Europe due to the Ukraine conflict ("major conflict happening... might take some time"), making EM the preferred vehicle for non-US exposure. Overweight Emerging Markets. US Dollar strength; geopolitical instability in specific EM regions.
Up Next
This CNBC video, published February 27, 2026, features Katerina Simonetti discussing MSFT, CRM, NOW, SPY, QQQ, XLV, XLF, XLI, XLB, EEM, VWO. 4 trade ideas extracted by AI with direction and confidence scoring.
Speakers: Katerina Simonetti · Tickers: MSFT, CRM, NOW, SPY, QQQ, XLV, XLF, XLI, XLB, EEM, VWO