Morgan Stanley: buy AI dip, $1.6 trillion 2027 hyperscaler spend

Morgan Stanley frames its call as a reaction to the market overreacting to the US midterm election results and what they imply for data center construction. Its report, titled Buy the Drop: AI Investment Opportunities Post the US Midterms, argues the AI investment cycle remains intact even if political opposition pushes some construction into 2029. The bank does not expect projects already under construction to be disrupted, which is why its 2027 forecasts are unchanged.

The geographical details matter here. The concern is largely centered on Texas and Ohio, where newly elected governors could introduce additional requirements for data center construction. Further out, Morgan Stanley sees a potential shift, with hyperscalers moving some projects to more accommodating states such as Tennessee and Louisiana, and it sees the potential for as much as 20 GW of additional data center development across Asia and EMEA.

The bank draws a sharp line between hyperscalers and their suppliers. It is particularly bullish on the largest technology companies, which it says have the balance sheets, existing infrastructure and technical capabilities to overcome power constraints. For suppliers, the outlook is more complicated: if the bottleneck shifts from equipment availability to powered buildings, they could experience reduced pricing power, rising inventories and slowing orders, with Morgan Stanley warning of a traditional downcycle in 2028 even as underlying AI demand remains strong. It also notes Meta's target of a tenfold increase in compute efficiency in 2027 as an example of how advances in model architecture, distillation, training techniques and specialized chips could let AI applications scale without matching increases in computing requirements.