Morgan Stanley: Stock, Wealth Management, and What the Numbers Say

For the better part of three years, the stock market has been a one-trick pony. The trick, of course, was artificial intelligence. If a company so much as whispered the acronym "AI" on an earnings call, its stock levitated. This wasn't just a narrative; it was the only narrative, a tide of capital so powerful it lifted everything from the mega-cap titans to the most speculative, unprofitable tech startups.

But tides recede. And right now, we’re seeing the first, unmistakable signs of the water pulling back from the shore.

The data is beginning to show a significant discrepancy. A new report from analysts puts a number to this feeling, as Morgan Stanley warns AI stock boom is running out of steam. The S&P 500 RavenPack AI Sentiment Index, a basket of stocks meant to capture the AI zeitgeist, is up a mere 6% in 2025. Meanwhile, the broader S&P 500 index is humming along with a 14.2% gain. When the supposed engine of the market is underperforming the market itself by more than half, you have to stop and ask what’s really going on under the hood.

This isn't a minor statistical blip. It's a potential regime change.

The Anatomy of a One-Note Market

To understand the gravity of this shift, you have to appreciate just how dependent this bull market has been on the AI story. The numbers laid out by Morgan Stanley are staggering. Since ChatGPT’s public debut in late 2022, AI-related stocks have accounted for roughly 75% of the S&P 500’s total returns, 80% of its earnings growth, and a jaw-dropping 90% of its capital expenditure growth.

Let that sink in. For three years, a single technological wave drove nearly all the meaningful financial activity in the public markets. It’s why Lisa Shalett, the firm’s CIO, refers to it as a “one-note narrative.” And as any musician knows, a one-note performance gets old very quickly. Shalett’s analysis suggests we’re in the “seventh inning” of this boom, a polite Wall Street way of saying the easy money has already been made.

And this is the part of the report that I find genuinely telling. The firm points to three core reasons for the slowdown: hyperscaler free-cash-flow growth has turned negative, price competition is accelerating, and recent M&A activity “smacks of speculation.” While the last point is a bit subjective, the first one is brutally objective. Negative cash flow is the mathematical reality that hype can’t obscure forever. When the biggest players, the ones funding this entire ecosystem, are burning through more cash than they’re generating, the whole pyramid starts to look unstable.

It raises a fundamental question about the sustainability of the current model. How long can capital expenditures continue to grow at 90% if the free cash flow to support them is contracting? At what point does the spending music stop?

From Gold Rush to Industrial Mining

The knee-jerk reaction is to declare the AI boom over. That’s a simplistic and, in my view, incorrect reading of the situation. What we’re witnessing isn’t an end, but a transition. Maja Vujinovic, CEO of Digital Assets FG Nexus, frames it perfectly: the market is shifting from a “sprint” to a “marathon.”

This is the most useful analogy I’ve heard for the current moment. The last three years were like the early days of a gold rush. Anyone with a pan and a bit of luck could rush to the river and pull out a few nuggets. The goal was speed and acquisition—buy every graphics card, build every data center, and stake a claim before anyone else. In that environment, profitability was a secondary concern. The primary metric was growth at any cost.

Now, we’re entering the industrial mining phase. The easy, surface-level gold is gone. To get to the real, valuable veins, you need heavy machinery, geological surveys, and a clear, profitable plan. You need efficiency. You need a demonstrable return on investment. The sprint was about spending; the marathon is about earning.

This is precisely why Morgan Stanley is waving a caution flag. The companies that thrived in the "sprint" phase—the unprofitable, small-cap tech firms and meme stocks—are the least equipped for the marathon. They don’t have the cash flow, the established contracts, or the access to power (both electrical and financial) to compete. They were built for a world of zero-interest rates and infinite hype, a world that no longer exists.

So, who is built for this new phase? Which companies have the operational discipline to turn massive capital outlays into sustained, positive cash flow? And how do you even value a company in a sector where, as professor Arie Brish notes, the difference between a 200% and 300% growth forecast is "anyone's guess"?

The Reckoning is Mathematical

Let's be clear. The AI revolution isn't a mirage. The technology is real and transformative. But the stock market is not the same thing as the technology. The market is a pricing mechanism, and for three years, it has priced the AI sector for a future of flawless, exponential growth. The latest data from Morgan Stanley and the simple reality of negative cash flows suggest that pricing was, at best, premature. The hype cycle has finally collided with the laws of financial gravity. This isn't a crash, it's a correction—not just in price, but in thinking. The era of buying a stock because it has "AI" in its press release is over. The era of scrutinizing balance sheets, cash flow statements, and competitive moats is back. The party isn't over, but the open bar is officially closed.