AI Spending: A New Engine for the Global Economy

Summary

Morgan Stanley economists discuss the AI capex cycle and its global economic impacts. US hyperscaler spending is surging, adding 40bps to GDP growth and underpinning equities, while Asia – particularly Korea, Taiwan, and Japan – is a major beneficiary through booming semiconductor exports. Europe lags significantly, with AI investment far below US levels, and faces fiscal headwinds. The panel also highlights a broader multi-year capex super cycle in Asia spanning energy, defense, and industrial onshoring.

• US AI/hyperscaler capex estimates revised up to $1.2-1.4 trillion by 2027-28.
• AI capex contributes ~40bps to US GDP growth but has high import content, benefiting other regions.
• Korea, Taiwan, and Japan are the biggest beneficiaries of booming semiconductor exports to the US.
• A broader capex super cycle in Asia includes AI, energy ($900bn by 2026), defense, and supply chain onshoring.
• US equity valuations and upper-income consumption are underpinned by AI-driven wealth creation.
• Europe’s AI investment is a fraction of the US, leaving it reliant on consumption and lacking growth.
• European fiscal expansion faces headwinds from aging, defense costs, and higher interest rates; growth is the missing solution.
• Productivity gains from AI remain confined to high-tech sectors with broader diffusion expected only after 2029.