We just published a list of the 10 Stocks to Watch from Morgan Stanley's Ultra-Selective Tailwinds Strategy , and Itron, Inc. (NASDAQ: ITRI ) ranked 10th on this list.
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.
Don't want to miss out on the AI craze? Here are the 10 Best Performing AI Stocks of 2026 .
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.
AI-driven automation is expected to be a game changer for many industries. Check out our list of the 10 Best Robotics and Automation Stocks To Buy That Are On Sale .
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.
ALSO READ: 10 Cheapest AI Data Center Stocks to Buy According to Billionaires .
Itron, Inc. (NASDAQ:ITRI) is among the companies that Morgan Stanley identified as being particularly well-positioned to benefit from the next phase of AI adoption. The stock was held by 30 hedge funds in the Insider Monkey database at the end of Q2 2026.
Itron, Inc. (NASDAQ:ITRI) provides smart meters, communication networks, and software to help electric, gas, and water utilities manage energy, water, and infrastructure. The rapid data center buildout has pushed US power demand to record levels, and Morgan Stanley sees an opportunity for Itron in the need for more sophisticated electric infrastructure, including systems that support dynamic pricing and better management of energy demand.
The results are already beginning to show. Itron reported its Q3 2026 results on October 27, with the company exceeding top- and bottom-line estimates. Notably, the company's adjusted gross margin of 41.3% was up 350 basis points from the prior year due to customer and product mix as well as operational efficiencies. As a result, while its revenue grew by 3% YoY, the adjusted EBITDA increased by 18% and adjusted EPS rose 26%. Itron also raised its full-year 2026 EPS outlook to a range of $6.72 to $6.82. This is a particularly encouraging development because earnings are growing much faster than sales.
Itron finished the third quarter with a backlog of $4.3 billion, with over 25% coming from its most software- and services-intensive segments. This is important because it means that the company is gradually moving beyond hardware sales toward a business with greater recurring revenue potential.
That said, the 3% YoY growth in revenue in the third quarter is modest. Furthermore, revenue for the first nine months of 2026 fell by around 3% to $1.75 billion. This raises a legitimate question about the sustainability of earnings growth. If revenue does not accelerate, the continued EPS expansion will depend increasingly on margins, cost savings, and favorable business mix.
Itron, Inc. ranks 8th in our list of the 10 Best Electrical Equipment Stocks to Buy According to Analysts. To see which stocks outranked it, click HERE .
While we acknowledge the risk and potential of ITRI 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 ITRI that operates as a critical AI tollbooth and stands as the most important company in the world, check out our report about this must-own AI stock .
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This article is originally published at Insider Monkey .
