Episode summary
A Thematic Look at Market Volatility
Thoughts on the Market (Morgan Stanley)
· · 10 min · Guests: Stephen Byrd, Michelle Weaver
Summary
Morgan Stanley argues that 2026 market volatility will be driven less by headline noise than by slower-moving thematic forces: AI and tech diffusion, the future of energy, the multipolar world, and societal shifts. The framework keeps three themes from 2025 and expands longevity into a broader societal shifts lens that includes aging, younger consumers, income-based behavior, and AI’s effect on work.
On AI, the guest argues there are now “two worlds”: frontier U.S. LLM developers with far greater compute and Chinese models that may lag on training scale but still offer practical low-cost applications. The guest also expects a persistent gap between what LLMs can do and what most users actually do with them, even as frontier capabilities support a bullish investment case. A major 2026 risk is the mismatch between compute demand and supply, which the guest says will make compute a scarce resource.
On energy, the guest says power remains a key bottleneck for data-center growth, with around a 47 gawatt shortfall before time-to-power solutions and a 10 to 20% shortfall even after them. Public backlash over electricity bills is intensifying, which can delay or cancel projects, while off-grid power providers may benefit. The host and guest also point to multipolar geopolitics, rare earths, defense, and AI technology transfer as central market drivers, and note that their thematic stock categories outperformed both the MSCI World and the S&P 500 in 2025.
Key takeaways
- The guest says 2026 will be shaped by four themes, with societal shifts expanding last year’s longevity work rather than replacing it.
- The guest expects U.S. frontier LLM developers to keep ahead of Chinese models because they have far more compute.
- The guest says compute demand will outstrip supply, making compute a scarce resource at both company and national levels.
- The guest says power is still a bottleneck for data centers, with a 47 gawatt shortfall before time-to-power fixes and a 10 to 20% shortfall even after them.
- The guest says Morgan Stanley’s thematic stock categories outperformed the MSCI World by 16% and the S&P 500 by 27% on average in 2025.
Notable quotes
“Markets are reacting to headlines by the minute, but the real drivers of long-term returns tend to move much more slowly and much more powerfully”
“For 2026, our framework is built around four key themes. AI and tech diffusion, the future of energy, the multipolar world, and societal shifts”
“We do think that the handful of American LLM developers that have 10 times the compute they had last year are going to be training and producing models of unprecedented capability”
“our power modeling work shows around a 47 gawatt shortfall before considering innovative time to power solutions”
“On average in 2025, our thematic stock categories outperformed MSEI World by 16% and the S&P 500 by 27% respectively”
How the episode opens
Welcome to Thoughts on the Market. I'm Steven Berg, global head of thematic and sustainability research. — And I'm Michelle Weaver, US thematic and equity strategist.
I was recently on the show to discuss Morgan Stanley's four key themes for 2026. Today, a look at how those themes could actually play out in the real world over the course of this year. It's Tuesday, February 10th at 10:00 a.m.
in New York. So, one of the biggest challenges for investors right now is separating signal from noise. Markets are reacting to headlines by the minute, but the real drivers of long-term returns tend to move much more slowly and much more powerfully.
That's why thematic analysis has been such an important part of how we think about markets, particularly during periods of high volatility. For 2026, our framework is built around four key themes. AI and tech diffusion, the future of energy, the multipolar world, and societal shifts.
In other words, three familiar themes and one meaningful evolution from last year. So, Michelle, let's start at the top. When investors hear four key themes, what's different about the 2026 framework versus what we laid out in 2025?
Well, like you mentioned before, three of our four key themes are the same as last year. So, we're going to continue to see important market impacts from AI and tech diffusion. the future of energy and the multipolar world.
But our fourth key theme, societal shifts, is really an expansion of our prior key theme, longevity, from last year. And while three of the four themes are the same broad categories, the way they impact the market is going to evolve. And these themes don't exist in isolation.
They collide and they intersect with one another having other important market implications.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- market volatility
- thematic research
- equity strategy
- sustainability research
- 2026 outlook
Companies and tickers mentioned
- MS
- Morgan Stanley
Watch the episode
Watch “A Thematic Look at Market Volatility” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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