AI Spending Pushes Financing Gap, Morgan Stanley Warns

Morgan Stanley argues the AI boom is entering a more capital-intensive phase, with 2027 capex for key hyperscalers rising about 57% from 2026 as they expand data centers and power infrastructure. While returns on invested capital could stay above 25%, the upfront cash required creates a widening financing gap since revenue and free cash flow lag. Credit spreads have widened for weaker borrowers, though cash-rich players like Nvidia and Broadcom have more financing flexibility, and private capital and asset-backed financing will play a larger role in funding hardware and infrastructure. Investors should watch 2027 capex guidance, free-cash-flow revisions, and financing activity to gauge who can sustain aggressive AI investments.