Thoughts on the Market — "A Thematic Look at Market Volatility"

Host: Stephen Berg (Global Head of Thematic and Sustainability Research)
Guest: Michelle Weaver (US Thematic and Equity Strategist)
Date: February 10, 2026

Episode Overview

In this episode, Stephen Berg and Michelle Weaver from Morgan Stanley dissect how the firm's four major market themes for 2026—AI and tech diffusion, the future of energy, the multipolar world, and societal shifts—are expected to manifest amid continued market volatility. The pair explore the evolution of each theme, their intersections, and what this means for investors looking to distinguish long-term signals from short-term market noise.

Key Discussion Points & Insights

1. Thematic Investing Amid Volatility (00:09–01:10)

• Main Challenge: Investors struggle to filter meaningful signals from rapid headline-driven market reactions. Long-term returns are typically dictated by slow-moving, underlying themes rather than short-lived events.

• 2026 Themes Identified:

  • AI and tech diffusion
  • The future of energy
  • The multipolar world
  • Societal shifts (expanded from last year’s “longevity” theme)

• Interconnectedness: Themes often intersect, amplifying implications for markets.

2. Evolution of AI and Tech Diffusion (01:52–03:54)

• Two Worlds of AI:

  • LLM Progress:
    • US developers, with exponentially increased compute, advance model capabilities far beyond 2025 levels.
    • Chinese models, limited by compute, focus on practical, cost-effective solutions for local business cases.
    • Result: Distinct US and Chinese AI ecosystems with differing strengths.
  • Adoption Gap:
    • Leaders may unlock dramatic benefits, but average user adoption lags behind.
    • Quote [02:41]:

      "You could see a really big gap between what you can do with an LLM and what the average user is actually doing... Those frontier capabilities eventually lead to bullishness."
      —Stephen Berg

• Compute Supply Crunch:

  • Systematic mismatch: demand for compute resources will sharply outpace supply.
  • Implications for companies and nations—compute becomes an "extremely precious resource."
  • Quote [03:34]:

    "Demand for compute is going to be systematically much higher than the supply. That has all kinds of implications..."
    —Stephen Berg

3. The Future of Energy (03:54–05:29)

• Power is a Bottleneck:
  • Modeling reveals a US shortfall of 47 GW for data center growth; even with "time to power" innovations, a 10–20% gap remains.
  • Political Overhang:
    • Rising consumer electricity bills are blamed (rightly or wrongly) on data centers, driving local opposition and even project cancellations.
    • The impact varies by region, utility market structure, and data center density.
    • Quote [04:23]:

      "Public perception has really turned against data centers and local pushback is causing planned data centers to be canceled or delayed."
      —Michelle Weaver

    • Off-grid power solution providers benefit by bypassing the grid, "insulating" consumers from data center demands.

4. The Multipolar World (05:29–07:34)

• US Policy & Reshoring:
  • Significant US efforts to reshore manufacturing and advance military technology.
  • Focus on lowering energy prices, curbing inflation, and reducing dependency on China (especially for rare earths).
• Resource Interdependence:
  • US dominates compute (AI), China dominates rare earths—setting up for strategic bargaining and possible mutual pressures.
  • Example: China may leverage rare earths to gain access to leading American AI technology.
  • Quote [06:24]:

    "China has a commanding position in rare earths. The United States has a leading position in access to computational resources. Those two are going to interplay quite a bit in 2026."
    —Stephen Berg

• Global Energy Politics:
  • Issues around data center impact on water, power prices, and employment will influence global policy responses.

5. Societal Shifts: An Expanded View (07:34–08:45)

• From Longevity to Societal Shifts:
  • Now covers more demographics, not just aging populations but also younger consumer behavior and income-based trends ("K economy").
• AI and Labor Markets:
  • AI expected to impact 90% of jobs, but mainly through automation/augmentation of tasks, not outright job loss.
  • Emphasis on workforce adaptability and ongoing reskilling.
  • Quote [08:17]:

    "Around 90% of jobs would be impacted by AI... not to say that 90% of jobs would be lost, but some task or component could be automated or augmented."
    —Michelle Weaver

6. Investment Performance: Real-World Results (08:45–09:38)

• Outperformance in 2025:
  • Thematic portfolios outperformed the MSCI World Index by 16% and the S&P 500 by 27%.
  • Top thematic performers:
    • Multipolar world (critical minerals, AI, semiconductors, defense)
    • Power & AI, nuclear energy also strong

Notable Quotes & Memorable Moments

• On AI:

  • "What I think we'll see in 2026 is a few major evolutions. One is a concept that we think of as two worlds of LLM progress and AI adoption."
    —Stephen Berg [01:59]

• On Power Dynamics:

  • "Power is still very much a bottleneck."
    —Michelle Weaver [03:57]
  • "Off grid power generation... able to completely insulate consumers because they are not connecting to the grid."
    —Michelle Weaver [05:17]

• On Rare Earths and Compute:

  • "China may exert pressure... to force the transfer of technology, the best AI technology to China."
    —Stephen Berg [06:55]

• On Labor Market Shifts:

  • "Workers are adaptable and we do expect many to reskill as part of this evolving job landscape."
    —Michelle Weaver [08:35]

Timestamps for Important Segments

• 00:09: Overview of the four themes for 2026
• 01:52: The evolution of AI and tech diffusion
• 03:54: Future of energy and data center power bottlenecks
• 05:29: The multipolar world—policy, resources, and geopolitical themes
• 07:34: Societal shifts: workforce, demographics, and AI's impact
• 08:45: 2025 investment performance by theme

Conclusion

This episode presents a cohesive look at how Morgan Stanley’s four key long-term market themes are evolving and intersecting amid heightened volatility. From AI geopolitics and compute bottlenecks to energy grid strains, shifting demographics, and labor transformations, investors are urged to look past daily headlines and focus on slower-moving tectonic shifts. The thematic frameworks discussed have so far yielded strong investment returns and will likely dictate where future opportunities and risks lie.

For further detail or to access related research, refer to Morgan Stanley's latest thematic investment notes.