Episode summary
Data Centers’ Political Battle
Thoughts on the Market (Morgan Stanley)
· · 5 min · Hosts: Ariana Salvatore
Summary
Political resistance to data center expansion is rising, but Ariana Salvatore argues that it is more likely to constrain supply than to weaken AI demand. She says about $156 billion of projects were canceled or delayed in 2025, and nearly the same amount was affected in just the first quarter of 2026, as communities and lawmakers raise concerns about power bills, water use, land use, and local disruption.
Even so, Morgan Stanley still expects roughly a little less than a trillion dollars of AI capex this year and approximately $877 billion in 2026 including NeoCloud providers. The case rests on continued compute scarcity, longer construction timelines, and rising weekly token usage as a proxy for demand. Salvatore says the backlash may actually pull projects forward as hyperscalers try to get capacity built before permitting, political, and grid risks worsen.
The base case is a conditional buildout: more scrutiny, more delays, and more environmental and community requirements, but not a collapse in spending. That could raise costs, spread projects farther from existing data center hubs, and accelerate on-site power solutions such as fuel cells, turbines, and energy storage. Morgan Stanley’s US equity strategy team still prefers hyperscalers over semiconductors in the near term.
Key takeaways
- Ariana Salvatore says the pushback against data centers is a supply-side risk, not a demand-side one.
- Morgan Stanley estimates about $156 billion of projects were canceled or delayed in 2025, with almost that amount again in just the first quarter of 2026.
- The firm still forecasts a little less than $1 trillion of AI capex this year and about $877 billion in 2026 including NeoCloud providers.
- Salvatore says longer build times and political uncertainty may pull hyperscaler spending forward rather than reduce it.
- The likely result is a conditional buildout with higher costs, longer timelines, and more demand for on-site power generation.
Notable quotes
“we're forecasting a little less than a trillion dollars of AI capex this year alone”
“we think this is primarily a supply side risk rather than a demand side one”
“From groundbreaking to operational launch, projects can now take as long as 3 years or even more”
“the scarcity and the uncertainty created by these constraints could actually end up pulling capital spend forward rather than reducing it”
How the episode opens
Welcome to Thoughts on the Market. I'm Ariana Salvatore, head of public policy research at Morgan Stanley. Today I'll be talking about why we still expect robust AI capital spending in spite of some rising political push back.
It's Thursday, July 23rd at 10:00 a.m. in New York. It should be no surprise to our listeners that data center push back, a topic that we've been following for some time, has been growing louder.
But in 2026, it's accelerated meaningfully. Data we track suggests that an estimated $156 billion of projects were canceled or delayed in 2025. This year alone, in just the first quarter, we've seen almost that same exact number.
The opposition is coming from several directions. 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 legislators with both Democratic and Republican lawmakers have been advancing this type of policy. 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.
So how do we square that circle? First and most importantly, we think this is primarily a supply side risk rather than a demand side one. We don't expect the backlash to materially reduce projections for compute demand.
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. Despite that more difficult political and infrastructure environment, our internet team led by Brian Noak remains constructive on AI capital spending. Our broader thematic estimate for total AI capex including the NeoCloud providers stands at approximately $877 billion in 2026 and we actually see risks skewed even higher from here.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- data centers
- political resistance
- supply constraints
- ai capex
Watch the episode
Watch “Data Centers’ Political Battle” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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