Thematic Investing in 2025: Morgan Stanley’s Key Global Investible Themes

This article is based on the Morgan Stanley reports “US Equity Strategy: Weekly Warm-up: Stay Bullish While Acknowledging the Risks” 21 July 2025, “What’s in a theme?” 4 July 2025, “Key Investment Thematics” 23 June 2025.

Thematic investing focuses on long-term structural trends—such as technological innovation, demographic shifts, and environmental change—that cut across traditional sectors and geographies. Rather than adhering strictly to classical portfolio construction, this approach allows investors to align with transformative global forces and personal values.

Morgan Stanley sees thematic investing as a powerful tool for generating active, risk-adjusted returns. While it may introduce higher volatility, the potential for outperformance—especially during periods of market disruption—is significant.

Thematic investing often involves targeting specific sectors or emerging industries, which means it can entail higher volatility than more diversified investments. Therefore, the goal should be to provide active returns on a risk adjusted basis. Key considerations include:

• Active risk and return: Balancing tracking error with higher expected returns.
• Concentration: Avoiding overexposure to narrow themes or overlapping sub-sectors.

Themes are typically driven by:

• Macro trends (e.g. aging populations, urbanisation): Identifying long term secular trends through demographics, research, surveys and local/global shifts.
• Innovation and disruption (e.g. AI, biotech): Analysing industries that are ‘ripe’ for disruption.
• Policy and regulation (e.g. climate accords): Monitoring government policies and global agreements like climate accords.
• Investor sentiment (e.g. ESG, sustainability): Tracking shifts in investor demand for themes such as ESG or sustainability.

To move from thematic ideas to investable conclusions, investors would need to determine the longevity of the theme, its growth potential and catalysts that could accelerate or decelerate the shift. This can be done through a series of steps;

1.    Look at trend sustainability:

• Time horizon: Thematic investing is inherently long-term, but timing entry and exit points is crucial to maximising growth potential. Even if early opportunities are missed, participating later can still be worthwhile to avoid missing out entirely.
• Growth potential: The size of the market or industry associated with a theme, as well as the growth rate we expect from beneficiaries, is also important.

2.    Consider the drivers and enablers:

• Technological drivers: Consider technologies or innovations that are pushing the theme forward.
• Regulatory support: Government regulations, fiscal policy and political climate may support the theme’s growth.
• Culture and behavioural shifts: Changes in societal behaviour or preferences can also drive a theme.

3.    Evaluate risks and headwinds:

• Regulatory risks: Potential future regulations or geopolitical drivers that could impact a theme’s growth.
• Technological risks: A theme may be reliant on immature or unproven technologies.
• Economic sensitivity: A structural theme may be more sensitive to economic cycles. 

For 2025 Morgan Stanley has four key themes which are all deeply intertwined, with associated investable ideas and sub-thematics:

AI (artificial intelligence) is seen as a multi-decade opportunity, with investment potential across semiconductors (e.g., Nvidia, Broadcom), cloud infrastructure (e.g., Microsoft, Amazon), and data centers (e.g., NEXTDC, Goodman Group). The shift from AI training to real-world inference is expected to drive demand for storage and connectivity solutions. We expect AI adoption to accelerate and use cases to become more business specific.

As AI workloads surge, so does the demand for power. Data centers are projected to consume up to 4% of global electricity by 2027. This theme explores investment in energy infrastructure and companies positioned to meet this demand (e.g., AGL Energy, AES Corp).

Driven by breakthroughs in areas such as GLP-1 obesity drugs (e.g., Eli Lilly’s Orforglipron)-living longer and healthier will have material implications for economies. GLP-1 are a class of medications primarily used to treat type 2 diabetes and, in some cases, obesity. Additionally, an oral drug is likely to expand the market to those who are ‘needle phobic’. This theme targets the growing global market for diabetes and obesity treatments. Morgan Stanley estimates the total addressable market has expanded to US$150 billion.

Geopolitical tensions are fueling a rise in global defence spending, with US defence spending growing steadily at around 3-4%. The sector provides strong investment appeal given government backed spending pledges, and with NATO spending targets linked to GDP. In addition, current defence spending for EU nations is still being viewed as insufficient. NATO’s new 5% GDP target for defence and security-related expenditures is expected to benefit European defence firms (e.g., BAE Systems, Rheinmetall).

Thematic investing also plays a central role in Morgan Stanley’s “Investing with Impact” framework, particularly through ESG-aligned thematic solutions such as clean energy and water conservation.

For more on thematic investing, contact a Morgan Stanley Financial Adviser or representative.