Governments are accelerating efforts to secure domestic control over artificial intelligence infrastructure, data and technology, a trend that Morgan Stanley expects will extend rather than curtail the global AI capital expenditure cycle. The push toward sovereign AI—treating compute, energy, data, models and supply chains as strategic assets—is set to drive further investment in data centers, semiconductors, networking, power generation and cloud capacity.
Colocation data centers are expected to benefit from demand for local hosting, physical data residency and geographically distributed computing capacity. Morgan Stanley estimates U.S. AI capital spending alone will reach $860 billion in 2026, underscoring the scale of investment underpinning the sector’s expansion.
The United States is projected to continue supporting domestic AI infrastructure while tightening controls on advanced technology flows to China. Morgan Stanley’s base case assumes a selective approach, targeting restrictions at specific Chinese AI developers rather than imposing blanket bans on models. Potential measures could extend beyond semiconductors to include cloud and compute access, procurement, model hosting and distribution.
China is anticipated to pursue localization through domestic procurement, cybersecurity regulations, local model integration and sovereign cloud infrastructure. The strategy may involve limiting foreign AI services without formal prohibitions, using requirements such as local partners, domestic data storage, security reviews and approved platforms. To offset reduced access to Western markets, China could expand its AI infrastructure, models and services across emerging economies, leveraging lower-cost models, open-source technology and partnerships. This approach would support domestic cloud, data-center, telecom, server, optical and power-equipment providers.
Europe is focusing on strategic autonomy in compute, cloud and semiconductors, though financing and scale remain significant challenges. ASEAN countries are emerging as one of the fastest-growing opportunities for sovereign AI infrastructure, building domestic capacity while relying on trusted international partners.
Morgan Stanley notes that AI is boosting productivity in highly exposed industries, even as it displaces jobs in vulnerable occupations. While productivity gains are expected to outweigh labor-market disruptions over time, heavy infrastructure spending risks amplifying boom-and-bust cycles and widening inequality.
