As companies struggle to maintain profitability in the face of rising inflation, Morgan Stanley predicts an investment opportunity among industry which provides technology to reduce costs and increase efficiency. |Technologies

 The swift and unexpected return of inflationary has significantly raised the cost of conducting business in addition to raising the expense of everyday life. Industries across the board are currently dealing with record energy prices as well as rising labor, supply, and service expenses.

information technology jobs

This trend is causing unprecedented investments to be made in products and services that can lessen the consequences of inflation, which is excellent news for businesses aiming to boost productivity. Morgan Stanley Research analysts see an investment option in firms that provide productivity-enhancing technology, notably in automation and digitalization, where entry barriers are strong. This is because corporations are investing more money into shoring up their profitability.

According to Josh Pokrzywinski, a U.S. electrical power and multi-industry analyst at Jp Morgan Research, "corporate investments are likely to pivot toward enhanced productivity and innovations that can lower the cost of doing business." Infrastructure is currently at the forefront of the political landscape, and labor and capital costs are rising. We predict more demand and better competitive advantages for businesses that offer creative and economical solutions in their specialized areas.

Put more emphasis on output

While technological advancements have had a significant impact on cost reduction for so many years, this benefit has been eclipsed by a protracted period of deflation, which is mostly due to slower population transition and global manufacturing. But the supply chain constraints imposed on by COVID, the escalating geopolitical tensions, and the heightened attention to energy security have upended that narrative. Companies should prioritize investments that will assist to boost productivity, saving expenses, and raising profitability as a result of this change in circumstances.

The average age of private fixed assets in the United States, including buildings, factories, and equipment, is at its top level since the mid-1960s, which has slowed productivity growth for 20 years. However, the historical underinvestment in productivity improvement highlights the potential of automation and digitalization, especially in light of a revived government emphasis on infrastructure investment rather than interest rate reduction and deficit reduction.

Overall, according to Pokrzywinski, "we think the incentives are now there for enterprises to refocus their resources on automated and productivity-driving technology." The firms that can provide these solutions for clients are more likely to benefit from the higher pricing and more unpredictable economic climate that we anticipate over the next ten years, giving a rather appealing risk-to-reward investment opportunity.

Compression Armor

In an inflationary environment, businesses that assist their clients in increasing productivity and cutting costs through automation, efficiency, or their own declining cost curves, whilst also maintaining high entry barriers, or what Morgan Stanley analysts refer to as "deflation enablers," present appealing investment opportunities.

Before the pandemic, the Msci Emerging markets Index—which monitors large- and mid-cap corporations across developed markets—and the values for these deflationary drivers were much in line. Through the end of 2021, the valuation of those companies increased, but at the start of this year, the trend reversed. The businesses seen to be offering technology and services to lower costs and increase efficiency have recently been trading at a premium to the larger market.

Three key technologies stand out as deflationary enablers: artificial intelligence, renewable energy, mass battery storage, and mobility. These technologies are permeating most industries and are reaching long-term inflection points.

Machine intelligence

Thanks to more affordable and powerful processing capabilities, AI models are advancing quicker than projected conventional. For instance, the biotech industry has been leveraging machine learning and AI to find novel treatments more rapidly, inexpensively, and effectively. According to Morgan Stanley, this development might result in dozens of novel therapeutics and a $50 billion industry over the following ten years. Since many businesses are now inexpensive in comparison to the whole market, AI might have a similarly revolutionary effect on other industries. This presents investors with an opportunity.

Renewable Energy

The move away from fossil fuels will be a lengthy and difficult process, complicated by geopolitical, climate change, and a renewed emphasis on energy security, and is predicted to be extremely inflationary in the end. Morgan Stanley believes that firms with distinctive clean-energy technology and few rivals will be able to enhance their profit margins with additional investment, providing investors with superior value. Many green tech stocks aren't pricing in robust growth, and analysts advise investors to look for firms that profit from the growing gap between high utility expenditures and lowering renewable energy prices.

Storage of Mass Energy

Cheaper and more readily available battery storage might change a variety of businesses. Long-haul and heavy-duty trucking, for example, has been severely impacted by high labor and fuel expenses, as well as a labor shortage; a switch to battery-powered trucks might lower prices and help balance these costs. Advances in bulk storing energy are also projected to promote the development of electric cars and, eventually, self-driving automobiles. Battery technology is still far from achieving its full potential, and investors can expect the total addressable market for firms in the field to grow dramatically as technologies become less expensive and more end users can use their goods and services to save money.

Environmental Adaptation

While artificial intelligence, renewable energy, and mass supercapacitors are broad groups of technology that address the consequences of inflation, they are far from alone. Other technologies address the demands of certain sectors. "These range in shape and function from automation tools aimed to cut more expensive personnel in businesses to expense booking software for airlines that must find ever-more inventive methods to offset growing jet-fuel prices," Pokrzywinski explains.

Morgan Stanley analysts recommend that investors consider a wide range of firms offering assistance that use automation technology—such as industrial robots used in industrial production, software to optimize business processes, and IT hardware for things like self-checkout innovation to help clients oversee this same current inflationary environment.