AI Spending: A New Engine for the Global Economy

This guide is based on the podcast episode 'AI Spending: A New Engine for the Global Economy' from the show 'Thoughts on the Market', published on July 21, 2026.

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   AI investment is reshaping the global outlook. In part one of this economic roundtable, our panel explores where the momentum is strongest — and where investment still needs to catch up.

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   Read more insights from Morgan Stanley.

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   ----- Transcript -----

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   Seth Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist and Head of Macro Research.

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   Michael Gapen: And I'm Michael Gapen, Chief U.S. Economist.

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   Chetan Ahya: And I'm Chetan Ahya, Chief Asia Economist.

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   Jens Eisenschmidt: And I'm Jens Eisenschmidt, Chief Europe Economist.

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   Seth Carpenter: And today is going to be our third quarter economic roundtable taking a wide-angle view on the global economy and all the key forces shaping our outlook and the economy.

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   Seth Carpenter: It's Monday, July 20th at 10am in New York

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    Jens Eisenschmidt: And 4pm in Frankfurt.

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    Chetan Ahya: And 10pm in Hong Kong.

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    Seth Carpenter: Since our last roundtable in April, the global economy has continued to face all sorts of shocks, a mix of resilience and friction. Inflation pressures have not disappeared. Energy and geopolitical risks have come up, they've receded, they've come back, they've receded all over the place

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    But there is one underlying source of momentum that we have to talk about. And that is the AI-driven CapEx cycle.

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    Michael, let me turn to you because the U.S. is a real focal point of all of this. Tell me a little bit about where Morgan Stanley Research is thinking about hyperscaler CapEx. How big it is? And then for you, when you think about the U.S. economy, just how big of a driver is it for what we're looking for in the U.S.?

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    Michael Gapen: Yeah, we continue to revise higher our estimates for hyperscaler and AI-related CapEx in the U.S. economy. We were thinking a little over a trillion for 2027. Now we're more like 1.2 - 1.3 trillion, maybe as high as 1.4 trillion in 2028. So, the level of hyperscaler spending continues to keep rising.

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    The growth rate and its effect on the economy is likely to slow.

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    But as you noted, it's still a major driver of momentum in the U.S.

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    You would look at that headline number and think, "Wow, that's, you know, 3.5 percent or so of GDP.

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    Must be a massive source of momentum for GDP growth." But roughly about 60 percent of that hyperscaler CapEx spending goes to items like computers and peripherals, equipment spending categories that have a very, very high import content.

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    We still get a significant number that AI CapEx is probably contributing around 40 basis points to growth this year. Be a similar-sized amount perhaps next year.

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    So, for an economy that's growing somewhere a little bit above 2 percent right now, maybe closer to 2.5 percent next year, that's a non-trivial amount. We just have to remember it's fueling growth around the world, just not here in the U.S.

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    Seth Carpenter: Yeah, that's a really great point because I have seen some estimates where people say, "Well, if it wasn't for AI CapEx, the U.S. economy wouldn't have grown at all." And that's clearly wrong, as you point out.

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    But U.S. imports are necessarily exports from somewhere else. And, Chetan, if I can pull you into the story then, U.S. firms are buying a lot of AI-related equipment from Asia. What does that mean in your part of the world? And in particular, I'm thinking about Korea, Taiwan, and maybe some other economies in Asia.

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    What's the critical story there?

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    Chetan Ahya: So, for Asia, this has definitely been a big boon.

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    If you look at Asia's exports, they have been booming, and particularly for the ones which are exporting semiconductors to the U.S.

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    They are seeing semiconductor exports growing by 90 percent.

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    And when we go back in time and compare Asia's semiconductor exports, it's very tightly linked to the U.S.

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    And it's not surprising when Mike Gapen mentions about the imports going up.

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    It's on the other side, helping Asia's exports quite meaningfully.

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    So, so far, we've seen this benefiting Korea, number one, Taiwan, and also Japan. All these three are big beneficiaries of U.S. AI CapEx. And of course, also not just U.S., but the other countries which are doing any little amount of CapEx on AI front, that's also helping these three economies in the region.

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    Seth Carpenter: You've been doing a lot of work, Chetan, recently about how much the story can actually broaden out, that the AI CapEx cycle has really contributed to Asian growth, but it doesn't tell the whole story that there's a broader industrial cycle.

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    Can you give us a little bit of a flavor of that story?

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    Chetan Ahya: That's right, Seth. So, we are actually highlighting that there is a CapEx and industrial super cycle that is underway in Asia, and there are four components to this story. AI and semiconductors CapEx, which we just briefly discussed.

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    And number four is industrial supply chain onshoring related CapEx.

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    I know that everybody still thinks that AI is the most important part of this story, but when I give you the numbers and the breakup of that...

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    So, for Asia, AI and semiconductor companies CapEx is about $380 billion in 2026, but energy CapEx is going to be $900 billion.

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    So, this is a far broader story than just AI for Asia.

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    Seth Carpenter: Mike, let me come back to you and to the U.S. then. So, isn't the growth story also broader than that as well domestically?

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    So, what's going on in terms of consumer spending in the U.S., and is there a broader CapEx story in the U.S. as well?

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    Michael Gapen: I would say, is it broader than that? I think maybe you could argue also it's narrower than that. Here's what I mean by that. As I noted AI CapEx contributing about 40 basis points to growth, it's certainly underpinning equity valuations in the U.S. and underpinning strong wealth creation.

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    So about [$]180 trillion in household net worth in the U.S.

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    About [$]55 trillion of that has been created in just the last five years alone, underpinned in part by AI-related spending and optimism about future profitability.

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    That's really supported spending by upper income households.

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    So, I think it's both investment-led and consumer-led, but they're inextricably linked.

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    So, the positive for the U.S. is that it's providing a lot of resilience. The negative component of that is it feels like momentum in the U.S. is narrowly driven.

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    Jens Eisenschmidt: Let me maybe jump in here from Europe to provide some perspective from the other side. So, I think it's a fair summary to say that AI investment is not yet, or maybe will never get there, dominating the business cycle.

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    What we do have instead is an unusually consumption-driven expansion.

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    That has to do not so much with an extraordinary strength of consumption, but more of an absence of other factors.

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    Now, prospectively looking forward, we think the fiscal expansion might help lifting us a little bit.

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    And then it is really the debate how much AI investment can arrive in Europe.

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    For now, I would say it's probably a factor of 20 that separates European investment plans from the plans we know that exist for the U.S.

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    Seth Carpenter: Let me stick with you then in Europe because you brought up fiscal as one of the factors going on here and where it's going… You and your team recently wrote a blue paper talking about what the outlook is for fiscal policy in Europe, and in particular, we had this era of cheap debt.

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    Interest rates in Europe were low, at times negative.

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    There's been a shift towards more fiscal expansion at the same time that interest rates have gone up, causing the cost of debt to go up.

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    Feels like there's a lot of push and pull going on.

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    Can you unpack for us a little bit what was in that paper you wrote, what's going on with fiscal policy in Europe, especially in Germany?

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    And what it might mean over time for Euro-area countries?

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    Jens Eisenschmidt: Yeah, so I think fiscal policy in Europe really is looking at a regim