Anton Kryachok
Investors focus on the artificial intelligence (AI) investment boom may be overlooking some of the world’s highest-quality companies, according to Anton Kryachok, portfolio manager for the International Equity team at Morgan Stanley Investment Management, who sees today’s market as a compelling opportunity for quality investing.
While global share markets have surged on the back of enthusiasm for AI infrastructure, semiconductors and digital transformation, market returns have become increasingly concentrated, creating what Kryachok describes as a growing disconnect between sentiment and fundamentals.
With less than 25 per cent of stocks currently outperforming the S&P 500 as of 31 May 2026, a small group of AI-related companies now account for an increasingly significant share of market performance.
“We’ve seen an extraordinary concentration of market returns over the past year, driven largely by a small number of companies benefiting from the AI infrastructure build-out,” said Kryachok.
“While those businesses have delivered exceptional performance, there are now entire pockets of high-quality companies trading at valuations we would not have expected to see.”
Kryachok says that the divergence can also be seen across the technology sector itself. Over the past 11 months (from 1 July 2025 to 31 May 2026), information technology stocks have gained more than 42 per cent, led by semiconductor companies, which have returned more than 86 per cent, and hardware businesses, which have risen more than 65 per cent.
In contrast, software and IT services companies have declined almost 10 per cent, despite many continuing to deliver resilient earnings growth and strong cash generation.
“The market has taken a broad-brush approach to AI disruption,” said Kryachok.
“Many businesses have been treated as potential losers simply because they operate in software, data or information-rich industries. Our view is that the reality is far more nuanced. Companies with proprietary data, embedded customer relationships and strong competitive advantages may actually emerge stronger as AI adoption accelerates.”
Kryachok believes this has created an increasingly attractive opportunity among high-quality businesses impacted by broader concerns about AI disruption.
Examples identified and held by MSIM’s International Equity team include globally recognised businesses across sectors such as digital platforms, enterprise software, electronic payments and advanced semiconductor manufacturing. These companies continue to benefit from strong competitive positions, embedded customer relationships and significant cash flow generation.
Other opportunities beyond the traditional technology sector include businesses operating in media and entertainment, as well as premium consumer discretionary segments, where long-term earnings potential appears underappreciated by the market, according to MSIM’s International Equity team.
“What unites these businesses isn’t the sector they operate in, but their ability to compound earnings over long periods of time,” said Kryachok.
“These are companies with strong franchises, resilient business models and durable competitive advantages that we believe position them well regardless of the economic or technological environment.”
Despite recent share price weakness across many quality businesses, Kryachok highlights that underlying earnings have remained resilient.
“Recent underperformance has largely been driven by valuation as investors reassess how advances in AI may affect the long-term prospects of software, data, and other information-rich businesses.
“As a result, many high-quality businesses are now trading at valuation levels that compare favourably with the broader market despite exhibiting stronger profitability and more resilient earnings streams.”
Kryachok said the current valuation backdrop was attractive for quality-focused investors.
“Today, investors can access a portfolio of high-quality global businesses at a discount to the broader market despite those companies generating higher returns on capital, stronger cash flows and more resilient earnings streams,” he said.
“While the timing of the next market rotation is difficult to predict, we believe owning high-quality businesses at attractive valuations remains a reliable strategy to compound wealth over the long term.”