Equity markets, particularly technology stocks, fell sharply in the days after the U.S. midterm elections. Democrats’ sizable advantage in both the House and Senate, alongside gains in several governors’ races, raised investor questions about the outlook for data center construction, the technology investment cycle and global equities. Markets have since recovered some of the losses from that initial post-election selloff.
However, Morgan Stanley Research believes the selloff was an overreaction. Should there be further volatility, investors can look for opportunities among AI enablers, infrastructure providers and companies adopting the technology.
The election results are more likely to delay some data center projects from 2028 to 2029 than derail the broader capital investment cycle. This has potential to elongate the AI spending cycle, which could bring a smoother rebalancing of supply and demand across the data center supply chain, an improved credit outlook and higher lease rates for computing capacity.
More than 20 Morgan Stanley Research teams globally assessed how the new U.S. political landscape could affect data center development, policy and equity investment opportunities across the U.S., Asia and Europe.
1. Data Center Buildout Delayed, Not Derailed
Newly elected governors are unlikely to disrupt projects already under construction, leaving the outlook for 2027 projects unchanged. However, some data centers scheduled for completion in Texas and Ohio in 2028 could be delayed until 2029 as incoming governors work with legislators to establish new requirements for developers.
Morgan Stanley Research has shifted 20% of its projected 2028 data center capacity to 2029, while maintaining a positive view of the overall buildout. Globally, the revised forecast implies growth in data center capacity of 9% in 2028 and 20% in 2029.
Potential U.S. delays could also create attractive opportunities for data center development outside the country.
2. AI Capital Spending Forecast Stays on Track
Hyperscalers—the major technology companies providing cloud computing, storage and networking services—are likely to continue spending and building as much capacity as possible to develop and scale new products for billions of users. The reason is simple: AI investment continues to offer an estimated return on invested capital of more than 30%.
Morgan Stanley Research maintains its forecasts for hyperscaler capital spending of $1.6 trillion in 2028 and $1.8 trillion in 2029.
These companies are also likely to shift some development to states with more favorable policies toward data centers, including Tennessee and Louisiana.
3. Financing Remains Available But Selective
With capital spending forecasts unchanged, AI-related debt issuance is likely to remain high in 2027, led by the hyperscalers.
However, financing for new construction and specialized AI cloud providers, known as neoclouds, could face greater scrutiny. Tenant quality, a credible path to securing power and contractual protections will likely become increasingly important.
Where Investors Can Find AI Opportunities
Following the sharp decline in AI-related stocks after the election, Morgan Stanley Research sees three main areas of opportunity.
