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Morgan Stanley has recommended selective buying opportunities in AI stocks following a sharp technology selloff after the US midterm elections. The brokerage expects political concerns to delay some data centre projects without disrupting the broader investment cycle. It favours major technology companies, infrastructure providers and software firms that use artificial intelligence. The outlook follows renewed uncertainty over AI spending and future data centre construction.
Democratic victories in the midterm elections raised concerns about tighter controls on large data centre developments. Technology shares subsequently fell and have since shown uneven trading patterns.
Morgan Stanley described the recent market disruption as an overreaction. It expects some projects scheduled for 2028 to move into 2029 rather than face cancellation.
Morgan Stanley believes the slower construction schedule could extend the AI spending cycle. A longer timeline may help suppliers balance production with demand while easing pressure across the data centre industry.
The brokerage also expects potential benefits for credit conditions and computing lease rates. Still, it warned that delayed projects could affect equipment suppliers and other businesses during 2028.
Morgan Stanley expects the broader investment programme to continue, although some spending may shift between years. It also sees opportunities for developers to expand beyond the United States.
The firm recommends a selective "Buy the Drop" strategy following the recent weakness in technology shares. Its preferred areas include hyperscalers, semiconductor companies, infrastructure suppliers, and businesses adopting AI tools.
Among hyperscalers, Morgan Stanley identified Amazon, Meta, Google, and Microsoft. Nvidia also appears among its investment considerations, although the company falls within the semiconductor category.
Morgan Stanley expects newly elected Democratic governors to leave projects already under construction largely unaffected. As a result, its outlook for data centres scheduled for completion in 2027 remains unchanged.
The brokerage anticipates delays affecting some 2028 projects in Texas and Ohio. State governments may introduce new requirements for developers before allowing additional construction.
Following this assessment, Morgan Stanley moved 5 gigawatts of planned US data centre capacity from 2028 into 2029. That represents approximately 20% of US projects and 10% of global projects.
Its revised forecast shows US data centre capacity additions falling 4% year over year in 2028. The brokerage then expects growth of 38% in 2029.
Globally, Morgan Stanley projects capacity additions will increase 9% in 2028 and 20% the following year.
The revised schedule could weaken suppliers' pricing power or lead to higher inventories during 2028. Morgan Stanley also identified approximately 20 gigawatts of potential development opportunities across Asia, Europe, the Middle East and Africa.
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Despite the expected delays, Morgan Stanley has maintained its capital expenditure forecasts. It still expects AI-related debt issuance to increase in 2027, primarily through major hyperscalers.
Yet the brokerage anticipates closer examination of new construction financing and smaller cloud infrastructure providers. Lenders may place greater weight on tenant quality, project readiness and contractual protections.
Meanwhile, existing constraints involving labour and materials could extend construction timelines further. Additional approval delays may also put pressure on spending forecasts for 2028.
Morgan Stanley is monitoring improvements in computing efficiency during 2027. Advances from leading AI laboratories could allow products to scale with fewer computing resources.
For infrastructure investors, the brokerage expects projects with existing cash flow to benefit from slower competing development. It therefore prefers colocation assets over hyperscaler data centre asset-backed securities.
The firm also considers software providers and AI adopters potential investment opportunities as the technology reaches more businesses.
Morgan Stanley expects the AI investment cycle to continue despite political uncertainty and delays in US data centre construction. Its selective buying strategy favours hyperscalers, semiconductor firms, infrastructure suppliers and AI adopters. The brokerage expects spending to extend into 2029 while financing conditions become more selective.