Political Pushback May Accelerate AI Capital Spending

This listening guide is based on the episode 'Data Centers’ Political Battle' from the show 'Thoughts on the Market,' published on July 23, 2026.

1. Publisher show notes

   Despite growing political resistance, investment in data centers isn't slowing. Ariana Salvatore explains why supply constraints may actually accelerate AI capital spending.

2. Publisher show notes

   Read more insights from Morgan Stanley.

3. Publisher show notes

   ----- Transcript -----

4. Publisher show notes

   Ariana Salvatore: Welcome to Thoughts on the Market. I'm Ariana Salvatore, Head of Public Policy Research at Morgan Stanley.

5. Publisher show notes

   Today, I'll be talking about why we still expect robust AI capital spending in spite of some rising political pushback.

6. Publisher show notes

   It's Thursday, July 23rd at 10am in New York.

7. Publisher show notes

   It should be no surprise to our listeners that data center pushback, a topic that we've been following for some time, has been growing louder.

8. Publisher show notes

   But in 2026, it's accelerated meaningfully.

9. Publisher show notes

   Data we track suggests that an estimated $156 billion of projects were canceled or delayed in 2025.

10. Publisher show notes

    This year alone, in just the first quarter, we've seen almost that same exact number.

11. Publisher show notes

    The opposition is coming from several directions.

12. Publisher show notes

    Communities are raising concerns about rising electricity bills, environmental pressures related to water use, and the local quality of life effects of large-scale construction. But it's also coming from lawmakers across the aisle. State legislatures with both Democratic and Republican lawmakers have been advancing this type of policy.

13. Publisher show notes

    At the same time, we're forecasting a little less than a trillion dollars of AI CapEx this year alone, and we think it's an increasingly important component of the macroeconomic growth outlook.

14. Publisher show notes

    So how do we square that circle?

15. Publisher show notes

    First, and most importantly, we think this is primarily a supply-side risk rather than a demand-side one.

16. Publisher show notes

    We don't expect the backlash to materially reduce projections for compute demand.

17. Publisher show notes

    Instead, it could widen the gap between that demand and the industry's ability to bring new capacity online through things like permitting delays, grid interconnection constraints, and local opposition.

18. Publisher show notes

    Despite that more difficult political and infrastructure environment, our internet team, led by Brian Nowak, remain constructive on AI capital spending. Our broader thematic estimate for total AI CapEX, including the neo cloud providers, stands at approximately $870 billion in 2026, and we actually see risks skewed even higher from here.

19. Publisher show notes

    So why is spending still increasing as the environment for building data centers becomes more challenging? There are a few reasons.

20. Publisher show notes

    First, the AI ecosystem remains compute constrained.

21. Publisher show notes

    The urgency to invest has not diminished.

22. Publisher show notes

    In fact, growing social opposition and political uncertainty ahead of the 2028 presidential election may actually be encouraging hyperscalers to begin projects earlier, which our credit strategists outline as a potential scenario here.

23. Publisher show notes

    A pull forward of demand before the political and execution risk grows even louder.

24. Publisher show notes

    Second, the timelines associated with data center construction have become longer. From groundbreaking to operational launch, projects can now take as long as three years or even more. That gives companies a strong incentive to begin developing future capacity well in advance, even if the political pushback is strong.

25. Publisher show notes

    And third, the underlying demand signal is not slowing. Global weekly token usage, which our analysts view as an important proxy for compute demand, has increased since early January. It's rising and continues to do so throughout the course of this year.

26. Publisher show notes

    So, in short, the pushback is real, but it appears to be reshaping the build-out rather than stopping it.

27. Publisher show notes

    That's why our base case is for a conditional build-out. We think projects are likely to face greater scrutiny, we think projects are likely to face greater scrutiny, longer delays, and more requirements related to environmental impact and community benefits.

28. Publisher show notes

    But ultimately, we still think they cross the finish line. That could mean higher costs, it could mean longer development timelines, and greater geographic dispersion of projects away from the largest existing data center markets.

29. Publisher show notes

    It could also accelerate the shift toward on-site and behind-the-meter power generation. Fuel cells, turbines, and energy storage are becoming increasingly important as operators look for ways to reduce their reliance on these lengthy grid interconnection processes, and that can benefit companies that are able to bring those solutions to the forefront.

30. Publisher show notes

    Meanwhile, our U.S. equity strategy team maintains a relative preference for hyperscalers over semiconductors over the next several months. As you heard our CIO and Chief Equity Strategist Mike Wilson explain yesterday, that's because the team sees the hyperscalers as early in discounting the market's renewed focus on CapEx discipline.

31. Publisher show notes

    Putting it all together, we see the growing pushback against data centers as representing a genuine risk to the pace, cost, and geography of the AI infrastructure build-out.

32. Publisher show notes

    But again, this isn't just a demand story, it's a supply story. And somewhat paradoxically, the scarcity and the uncertainty created by these constraints could actually end up pulling capital spend forward rather than reducing it.

33. Publisher show notes

    Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share thoughts on the market with a friend or colleague today.