Artificial intelligence is rapidly reshaping the current corporate landscape. However, the next phase of its economic impact may extend well beyond the companies developing AI models, semiconductors, and data centers.
In its September 2026 report, AI Beneficiaries: Investing in Second-Order Effects – Update: 100x AI Cultures, Morgan Stanley argued that investors should keep a close eye on businesses that can successfully integrate the technology into their workflows more effectively than peers and use it to significantly enhance their productivity. In the long run, these beneficiaries of the second-order effect of the AI boom could drive even greater returns than companies that simply supply the infrastructure behind it.
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The report draws on historical examples to justify its argument. During the automobile revolution, car manufacturers appeared to be the obvious initial beneficiaries. However, their long-term returns were limited by intense competition and industry consolidation. Meanwhile, companies such as the Walton family's retail giant capitalized on the broader shifts enabled by automobiles, including suburbanization and expansion of big-box retail.
Similarly, the widespread adoption of Wi-Fi did not necessarily translate into exceptional returns for router manufacturers, while Netflix emerged as a clear winner from the subsequent growth of streaming. Morgan Stanley believes that AI could follow a similar pattern, with AI-driven automation and productive workforces representing a similar second-order investment opportunity.
To identify potential winners, the firm developed an indicator called the AI Productivity Spread, calculated by subtracting the growth in average technical employee compensation from the growth in revenue per technical employee. A positive and widening spread suggests that the organization is particularly effective at translating AI adoption into higher employee productivity and business output. Morgan Stanley analyzed around 750 publicly traded technology companies and approximately 40 million employee records, concluding that the businesses with the highest AI Productivity Spreads subsequently delivered better stock returns compared to their peers.
Beyond the technology sector, the report examines how AI-driven automation could improve corporate profitability throughout the broader economy. Morgan Stanley estimates that automating half of the positions classified as having a high probability of automation across the 1,000 largest publicly traded companies could eliminate around 1.7 million jobs and cut labor costs by $207 billion. After accounting for the distribution of these savings among shareholders, employees, customers, and suppliers, these companies could retain an estimated $87 billion in additional profits.
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In conclusion, as AI tools become more widely available, Morgan Stanley believes that the companies that integrate them more effectively into their operations could capture a disproportionate share of the resulting economic benefits.
We provided the expanded list of 10 Stocks to Watch from Morgan Stanley's Ultra-Selective Tailwinds Strategy here . The top 5 stocks are listed below.
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Methodology:
Against the aforementioned backdrop, Morgan Stanley identified 10 companies that it believes are particularly well-positioned to benefit from the next phase of AI adoption. Five of these stocks are also holdings in the firm's Tailwinds Strategy as of June 30, 2026. We ranked these stocks by their respective portfolio weights, while ranking the remaining five by the number of hedge funds invested in them in the Insider Monkey database at the end of Q2 2026.
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5. Aurora Innovation, Inc. (NASDAQ: AUR )
Number of Hedge Fund Investors: 40
Portfolio Weightage: 0.47%
Aurora Innovation, Inc. (NASDAQ:AUR) is developing autonomous trucking technology, with the objective of enabling trucks to operate without human drivers.
Morgan Stanley sees an opportunity to improve the utilization of expensive trucking assets. If autonomous technology allows them to spend more time transporting goods than sitting idle, trucking companies could generate more revenue from the same fleet. This could translate into lower transportation costs, better fleet productivity, and potentially higher operating margins. The technology could also help reduce accidents associated with human error.
Aurora has already moved beyond testing and is hauling freight commercially with trucks operating without anyone being behind the wheel. The company's Driver as a Service (DaaS) model could generate recurring revenue from customers without requiring Aurora to own every truck. Ultimately, the firm's autonomous driving software, accumulated driving data, safety validation, and partnerships with major truck manufacturers could make it difficult for competitors to replicate its position.
Notably, Charger Logistics has selected Aurora to scale its autonomous fleet with a plan to own and operate 500 Driver-as-a-Service trucks. The MoU represents a potential multiyear revenue stream in the hundreds of millions of dollars. Meanwhile, Aurora continues to ramp up its production capacity, with a targeted production rate of 20 trucks per week starting in early December.
That said, there is a substantial disconnect between Aurora's technological progress and financial performance. The company reported an operating loss of $257 million in the third quarter, including stock-based compensation. While it has over $1 billion in cash and short-term investments, the firm expects to use approximately $250 million during Q4 2026 to ramp up production.
Aurora clarified that its liquidity should be enough to cover working capital and capital expenditure requirements for at least the next 12 months. However, the management indicated that it will need to opportunistically raise additional capital, creating a risk of dilution.
Aurora Innovation, Inc. (NASDAQ:AUR) ranks 5th in our list of the 10 Best Autonomous Vehicle Stocks Backed by Hedge Funds. To see which stocks outranked it, click HERE .
4. ASML Holding NV (NYSE: ASML )
Number of Hedge Fund Investors: 140
Portfolio Weightage: 0.63%
ASML Holding NV (NYSE:ASML) supplies the advanced lithography equipment needed to manufacture leading-edge chips. The company benefits from the infrastructure spending behind AI, regardless of which particular AI model ultimately wins.
ASML currently enjoys a monopoly as it is the only supplier of extreme ultraviolet (EUV) lithography systems, which are essential for manufacturing the most advanced semiconductor nodes. The company has accumulated the technology, manufacturing expertise, and customer relationships needed to produce these systems at commercial scale, and it is not something a competitor can simply decide to build.
Given the high demand, ASML expects EUV system sales to grow more than 45% in FY 2026. Additionally, once its machines are installed, customers need upgrades, maintenance, and services to keep them functional, and the company expects this revenue to also grow by 50% this year. The demand is also showing no signs of slowing down, as ASML confirmed in its Q3 earnings call on October 14 that it does not expect to be able to build enough machines to meet what customers want in 2027 or 2028.
Morgan Stanley also pointed to geopolitical tensions and the semiconductor industry's push toward geographically diversified supply chains, or friendshoring, as an additional source of demand for ASML's machines. That said, the same friendshoring can also restrict the company's ability to sell advanced equipment to certain customers, particularly in China. Additionally, a potential slowdown in AI spending could also negatively impact the demand for ASML's products.
ASML Holding NV (NYSE:ASML) is placed among the 10 Best Stocks to Buy for Next Ten Years . The top stock on this list has gained almost 15% this year.
3. Axon Enterprise, Inc. (NASDAQ: AXON )
Number of Hedge Fund Investors: 53
Portfolio Weightage: 1.75%
Axon Enterprise, Inc. (NASDAQ:AXON) makes Taser electric stun devices, police body cameras, and AI-powered surveillance technology. The company has built a large ecosystem of cameras, cloud-based evidence storage, software, and connected public safety workflows.
Morgan Stanley believes that AI could make Axon's existing competitive moat more valuable, improve police productivity, and create network effects that competitors may find hard to replicate. While a competing AI firm may develop a great video-analysis model, it would still need access to the relevant footage, integration with police workflows, appropriate security controls, and the trust of law enforcement agencies. Axon already has all of that. Additionally, as agencies integrate more workflows into the company's ecosystem, switching to competing platforms becomes more complicated.
Axon's Q2 2026 results support this thesis. The company's annual recurring revenue increased 39% YoY while its net revenue retention reached 126%. This indicates that the firm is monetizing its installed customer base rather than depending exclusively on new agency wins. Notably, Axon's AI Era Plan was a true standout in the second quarter, growing almost 700% YoY. This is particularly encouraging because AI is already contributing to the company's revenue stream rather than remaining a research project with uncertain commercialization prospects.
That said, the integration of AI into public surveillance and police investigations can also introduce legal, reputational, and ethical risks. It was reported on November 4 that Axon has been sued in a proposed class action, with the company accused of unlawfully collecting and storing information about millions of California drivers through its AI-powered license plate reader network.
Baron Capital , an investment management company, stated the following regarding Axon Enterprise, Inc. in its Q2 2026 investor letter :
"Axon Enterprise, Inc. (NASDAQ:AXON) is a public-safety-oriented company that sells its products to governments and law enforcement agencies around the world. Its mission is to "make the bullet obsolete" using non-lethal Taser devices combined with digital body cameras, drones, license plate readers, cloud-based software (including AI report generation which simplifies the administrative workload for law enforcement officers), and virtual reality training. This array of technology aims to provide better relationships between law enforcement and its constituent communities, and to reduce the number of fatal outcomes dramatically when stressful confrontations occur. Axon was a very successful investment for Baron Discovery Fund® when it was a smaller market cap company. In the current quarter we got a rare opportunity to repurchase Axon at a discount when it traded down as part of the "AI losers" basket. For the first half of 2026, the market has pressured the shares of all software-oriented companies as part of the "LLMs will eat all other software companies" trade. We view Axon as a market-leading "atoms plus electrons" software provider with huge competitive moats. And we believe there's an opportunity to more than double our money over a five-year time frame at current prices."
Click here to see what Jim Cramer thinks about Axon .
2. Symbotic Inc. (NASDAQ: SYM )
Number of Hedge Fund Investors: 39
Portfolio Weightage: 1.92%
Symbotic Inc. (NASDAQ:SYM) develops AI-powered robotics and automation systems for warehouses and distribution centers. The company's technology automates the movement, storage, retrieval, and organization of goods, reducing the need for manual warehouse operations.
Morgan Stanley specifically highlighted the deployment of Symbotic's technology across 43 Walmart warehouses. The retail giant operates a massive supply chain, moving enormous quantities of merchandise from suppliers to distribution centers and eventually to retail stores. This creates substantial labor requirements and operational complexity, and automating even a portion of that network could improve inventory movement, warehouse throughput, and labor productivity.
On October 30, Walmart announced an expanded commercial agreement with Symbotic to add further automation capabilities to 25 regional distribution centers in the United States, while supporting additional opportunities across the former's global supply chain network. The deal includes an initial commitment of approximately $6 billion in spend, covering work over several years across multiple locations.
Symbotic is also expanding beyond its original warehouse automation and announced the acquisition of German automation company cellumation GmbH last month. The strategic move will expand the firm's supply chain robotics portfolio with software-driven sortation technology and bolster its footprint in Europe.
That said, Symbotic's heavy dependence on Walmart is also its biggest fundamental vulnerability. The retail giant accounted for about 85% of the company's revenue in its 2025 fiscal year, and still represents a significant portion of its backlog. While the latest $6 billion agreement is positive, it further reinforces the importance of Walmart to Symbotic's future. The company needs to demonstrate that it can replicate this success with other large retailers, distributors, and logistics operators.
Symbotic Inc. (NASDAQ:SYM) ranks 10th in our list of 10 Stocks that Will Change the World by 2030. To see which stocks we believe have a better chance of being game changers, click HERE .
1. Waste Connections, Inc. (NYSE: WCN )
Number of Hedge Fund Investors: 62
Portfolio Weightage: 2.54%
Waste Connections, Inc. (NYSE:WCN) is an integrated waste management company that provides waste collection, transfer, disposal, and recycling services. Its competitive advantage comes primarily from its network of collection routes, disposal facilities, and local market positions.
Waste Connections' landfill assets are especially valuable because obtaining permits for new landfills is extremely difficult, especially close to big cities. Local opposition, environmental requirements, zoning restrictions, and regulatory approvals create substantial barriers to entry. So even if a smaller waste hauler can purchase trucks and hire drivers, it cannot replicate a strategically located landfill.
Morgan Stanley argues that automation in waste sorting could improve the economics of its recycling operations. More efficient sorting facilities could reduce labor requirements and operating costs, and thus improve profitability. Additionally, these efficiency improvements could make Waste Connections a preferred acquirer of smaller waste businesses that lack comparable automated infrastructure. The company already closed acquisitions representing approximately $130 million in annualized revenues during the third quarter.
The improving landfill activity and stronger commodity-related revenue helped Waste Connections raise its full-year outlook for the second time this year. The company now expects revenue of approximately $10.09 billion and adjusted EBITDA of $3.345 billion for FY 2026.
That said, the waste management company's declining organic volumes remain a concern. Waste Connections' overall solid waste unit volumes fell 1.2% YoY in the third quarter, indicating that demand hasn't fully recovered. This matters because price increases cannot compensate indefinitely for declining volumes.
Waste Connections, Inc. (NYSE:WCN) ranks 5th among the Best Metal Recycling Stocks to Buy. Click HERE to see which stocks ranked better.
While we acknowledge the risk and potential of WCN as an investment, we believe certain AI infrastructure stocks offer far stronger long-term potential at a much more attractive entry point. If you are looking for an AI stock more promising than ACN that operates as a critical AI tollboothand stands as the most important company in the world, check out our report about this must-own AI stock .
Click to continue reading and see the expanded list of the 10 Stocks to Watch from Morgan Stanley's Ultra-Selective Tailwinds Strategy .
This article is originally published at Insider Monkey .
