Morgan Stanley has revised upward its U.S. growth projection for 2026 after updating its assumptions on corporate capital spending, attributing the change to firmer business investment linked to rising hyperscaler outlays.
In a client note released on Friday, analyst Michael Gapen said incoming data show "both demand-side and supply-side elements," leading the bank to increase its real GDP forecast for 2026 to 2.6% from its prior 2.4% estimate.
Gapen reported that Morgan Stanley's equity team now expects hyperscaler capital expenditures in 2026 and 2027 to reach $720 billion and $882 billion, respectively, up from earlier projections of $603 billion and $702 billion. The bank said the revised trajectory implies annual growth that is "much less slowing than we had anticipated previously," with a more pronounced deceleration shifted into 2027.
Those hyperscaler assumptions carry through to broader measures of business investment. Morgan Stanley raised its forecast for nonresidential business fixed investment in 2026 to 5.3%, from a previous 3.1% projection. Within that category, the bank now expects equipment spending to increase 6.4%, intellectual property investment to expand 5.8%, and structures to rise 2.1% in the year - a mix that the bank says implies a 0.7-percentage-point contribution to real GDP, compared with a 0.4-point contribution under the earlier outlook.
Gapen also noted that stronger imports are incorporated into the updated outlook. The overall forecast has tilted toward Morgan Stanley's "animal spirits" upside scenario, a shift the bank attributes to resiliency in consumer spending alongside firmer business investment.
Payroll revisions factor into the picture as well. The bank's updates imply productivity growth of 2.4% through the third quarter of 2025, up from a previously reported 1.9%.
At the same time, Morgan Stanley warned that downside risks are shifting. Rather than naming trade protectionism as the primary concern, the bank cautioned that an AI-driven investment boom "poses ever greater risk" if expected returns fail to materialize. It added that major innovation cycles "have come with credit cycles and boom-bust characteristics."
Summary
Morgan Stanley raised its 2026 U.S. growth forecast to 2.6% on stronger capex assumptions tied to increased hyperscaler spending, boosting projections for business fixed investment and productivity while flagging AI-driven investment as a growing downside risk.
- Key points:
- Hyperscaler capex in 2026 and 2027 revised to $720B and $882B, up from $603B and $702B - impacts technology and equipment vendors.
- Nonresidential business fixed investment forecast raised to 5.3% for 2026; equipment, IP, and structures all revised higher - relevant for industrials, software, and construction sectors.
- Forecast tilt toward an "animal spirits" upside scenario supported by resilient consumer spending and firmer business investment.
- Risks/Uncertainties:
- An AI-driven investment boom "poses ever greater risk" if returns do not materialize - could affect technology and capital goods markets.
- Major innovation cycles have historically "come with credit cycles and boom-bust characteristics," suggesting financial sector and credit markets may face volatility.