Thoughts on the Market
2026-07-24 · Hosted by Mike Wilson · Morgan Stanley
Executive Summary
Morgan Stanley's Ariana Salvatore explained why the firm still expects robust AI capital spending despite mounting political pushback against data centers. An estimated $156 billion of data center projects were canceled or delayed in 2025, and 2026 has already seen almost that same amount in just the first quarter, driven by community concerns over electricity bills, water use, and construction impacts, plus bipartisan state-legislature opposition.
Key Stories & Changes
1. Data Center Political Pushback Accelerates Sharply
An estimated $156 billion of data center projects were canceled or delayed in 2025
2026 Q1 alone has already seen nearly that same dollar figure in cancellations/delays
Opposition driven by rising electricity bills, environmental/water-use concerns, and local construction impacts
Both Democratic and Republican state legislators are advancing restrictive policy, making this a bipartisan trend
2. Morgan Stanley Maintains a Bullish AI CapEx Forecast
Firm-wide forecast: just under $1 trillion in AI CapEx for 2026
Internet team (led by Brian Nowak) estimates total AI CapEx, including neo-cloud providers, at approximately $870 billion in 2026, with risk skewed to the upside
Credit strategists suggest political uncertainty ahead of the 2028 presidential election may actually be pulling hyperscaler spending forward, as companies rush to lock in projects before opposition intensifies further
U.S. equity strategy team maintains a relative preference for hyperscalers over semiconductors over the next several months, viewing hyperscalers as earlier in discounting the market's renewed focus on CapEx discipline (spending efficiency scrutiny)
3. Structural Reasons Spending Continues Despite Opposition
Data center construction timelines have stretched to three years or more from groundbreaking to operational launch, incentivizing companies to start projects well ahead of anticipated political resistance
Global weekly token usage — a proxy for compute demand — has risen continuously since early January and shows no signs of slowing
The compute ecosystem remains constrained relative to demand, sustaining urgency to invest regardless of local opposition
Trends Identified
1. Pushback Reshapes the Build-Out Rather Than Stopping It
Morgan Stanley's base case is a "conditional build-out": greater scrutiny, longer delays, and more environmental/community-benefit requirements, but projects ultimately still get built. This could mean higher costs, longer timelines, and greater geographic dispersion of data centers away from today's largest concentrated markets.
2. Political Risk May Be Paradoxically Accelerating Near-Term Spending
Rather than slowing hyperscaler investment, the combination of rising opposition and looming 2028 election uncertainty may be pulling capital spending forward (bringing planned spending earlier) as companies race to secure sites and permits before the environment gets even more difficult — a supply-side scarcity dynamic rather than a demand pullback.
3. Shift Toward On-Site and Behind-the-Meter Power
As grid interconnection delays lengthen, the report flags growing importance of on-site power solutions — fuel cells, turbines, and energy storage — as operators try to reduce dependence on lengthy utility grid processes, a structural tailwind for companies offering those solutions. ---
Sentiment Analysis
Overall Market Sentiment: Constructive Despite Friction
Morgan Stanley remains structurally bullish on AI infrastructure spending even as it acknowledges genuine and growing political risk to the pace and geography of the build-out.
Risk Factors Highlighted
Accelerating project cancellations: Nearly a full year's worth of 2025 cancellations already matched in Q1 2026 alone, signaling opposition is intensifying, not fading.
Bipartisan state-level opposition: Political risk isn't confined to one party, reducing the odds of an easy legislative resolution.
Permitting and grid interconnection delays: Longer approval timelines could widen the gap between compute demand and available capacity.
Election-cycle uncertainty: Rising political risk ahead of the 2028 election could further complicate long-duration infrastructure planning.
Geographic concentration risk: Continued opposition in traditional data center hubs may force costlier, more dispersed buildouts.
CapEx discipline scrutiny: The equity strategy team's rationale for preferring hyperscalers over semis stems from anticipated market focus on spending discipline — a signal that investor patience for unconstrained CapEx growth may be narrowing.
This episode was covered in today's [The Market Signal — 2026-07-24](https://marketsignal.beehiiv.com/p/the-market-signal-2026-07-24), a cross-source synthesis of multiple podcast reports.