There's still room for AI hardware stocks to rise, but analysts at Morgan Stanley say it's time to diversify into a wide variety of industries that are starting to realize AI benefits

Airbnb has laid out a case for how AI is helping its business, according to Morgan Stanley.

Artificial intelligence is starting to benefit new types of companies, and that could necessitate adjustments to your AI portfolio, Morgan Stanley analysts say.

A group of analysts led by Stephen Byrd wrote in a Thursday note that they recommend a "barbell" approach to investing in AI. That means holding on to more typical AI plays, or "AI enablers" like chip makers that are at the core of the AI infrastructure build-out. But it also means branching into new "AI adopters," like companies in the transportation and real-estate sectors.

Chip stocks and AI infrastructure stocks have broadly outperformed the S&P 500 SPX since the AI wave kicked off. With that in mind, the analysts recommended being "selective" with picks across chips and infrastructure, in order to make room for new plays.

Within the chip sector, Morgan Stanley analyst Joe Moore said that demand remains "exceptionally strong" for companies serving the data-center market. Nvidia (NVDA) and Broadcom (AVGO) are two of his recommended plays, given their expected revenue growth boosted by big spenders like AI-model developers.

"We believe demand for compute is likely to significantly exceed supply for years to come," the Morgan Stanley analysts noted, referring to computing power.

In past technological cycles, it's made more sense for "market leadership" to transition from one sector to another as a trend unfolds, they added. But the AI build-out has been slowed down by bottlenecks related to local backlash, energy shortages and politics - leaving room for hardware providers to cash in over an elongated period in which their products remain scarce.

Meanwhile, "now is the time to start adding exposure to early software enablers and AI adopters," the analysts wrote.

In the software industry, analyst Adam Wood recommended Microsoft (MSFT), Snowflake (SNOW), Datadog (DDOG), Cloudflare (NET) and Dynatrace (DT). He noted that these companies are in the "infrastructure" software space, meaning they develop systems like cloud storage that form the underlying infrastructure for AI applications.

Yet the analysts believe that "new AI entrants" in areas outside of tech - across healthcare, real estate, cars and consumer services - are also worth including in a portfolio.

"The exponential scaling of LLM capabilities and AI's full potential productivity impact suggest a broad and meaningful opportunity for value creation," the analysts wrote, referring to large language models, a technical term for AI models.

One example of a company that's clearly "quantifying" the impact of AI on its business, they said, is iRhythm Holdings $(IRTC)$, a healthcare company that claims AI will reduce the time it takes for clinicians to review medical records by almost half.

Airbnb (ABNB) is another: The home-rental platform says that 40% of issues are resolved without human agents through the use of its AI assistant, which has substantially reduced booking times, according to Morgan Stanley.

The investment bank's analysts hold positive ratings on shares of so-called AI adopters across a variety of industries - including Home Depot (HD), Procter & Gamble (PG), GE Aerospace (GE) and Coca-Cola (KO).

See also: The old new thing: Cisco and retro tech are back and forming the AI build-out's backbone

-Hannah Pedone