Written by: Rita
$1.6 trillion in capital expenditures corresponds to approximately 5% of S&P 500 revenue and 25% of revenue growth. In its report dated October 20, 2026, Morgan Stanley aggregated cash and lease expenditures for hyperscale and new cloud providers, estimating $1.58 trillion for 2027 and $1.81 trillion for 2028. The report projects that AI-related capital expenditure growth will decline from approximately 100% in 2026 to around 60% in 2027 and approximately 14% in 2028.
The market is concerned about a slowdown in 2028. Morgan Stanley’s estimates show that S&P 500 earnings growth in 2027 will be 8.6%, still reaching 6.6% after excluding direct AI revenues. The report attributes approximately 65% of 2027’s capital expenditures to S&P 500 companies, with NVIDIA being the largest recipient.
Lease expenses are a new variable in this report. Hyperscale providers have disclosed over $1.1 trillion in lease commitments that have not yet begun and are not recorded under capital expenditures on the cash flow statement. Morgan Stanley has added lease capital expenditures to cash expenditures, estimating $195 billion in lease spending in 2027 and $246 billion in 2028.
Rental expenses are a new variable.
Cash capital expenditures in 2027 are approximately $1.4 trillion, rising to $1.58 trillion when including leases. In 2028, cash capital expenditures are approximately $1.57 trillion, rising to $1.81 trillion with leases included. Lease expenditures amount to $195 billion in 2027 and $246 billion in 2028, primarily driven by Oracle, Microsoft, Meta, Amazon, and Google.
Uncommenced lease commitments will reach $1.118 trillion in Q2 2026. Oracle: $288 billion, Microsoft: $329 billion, Meta: $279 billion, Amazon: $137 billion, Google: $85 billion. These leases economically resemble capital expenditures financed through debt, bypassing GAAP cash flow statements. Morgan Stanley estimates them using three metrics: uncommenced leases, annual new capacity additions, and the proportion of lease spending per GW.
Capital expenditure growth is slowing: approximately 100% in 2026, around 60% in 2027, and roughly 14% in 2028. The absolute scale continues to rise, with approximately $700 billion in additional AI spending from 2026 to 2027. Morgan Stanley estimates that about 65% of this spending flows into the S&P 500.
AI contributed to one-quarter of revenue growth.
In 2027, revenue from hyperscale and new cloud vendors accounted for 5% of S&P 500 total revenue, driving approximately 25% year-over-year growth. S&P 500 revenue grew by 8.6%, or 6.6% excluding direct AI revenue. Morgan Stanley believes that broadening within the S&P 500 is already underway, with strong growth even without AI investment increases.
Of the $1.6 trillion in capital expenditures, approximately $1.0 trillion flows into S&P 500 revenues, with NVIDIA capturing about $690 billion. NVIDIA accounts for two-thirds of the S&P 500’s absorbed amount and roughly 1.6% of S&P 500 sales in 2027. The remaining $339 billion flows to other S&P 500 companies.
AI-related companies in the S&P 500 are projected to achieve 28% sales growth in 2027, compared to 5% for non-AI companies. Profit growth is forecast at 25% for AI companies and 4% for non-AI companies. AI-related companies are expected to account for 78% of the S&P 500’s overall profit growth in 2027 and represent 37% of the index’s net income. The Magnificent 7 make up 70% of AI cohort sales and 75% of its profits.
NVIDIA takes two-thirds.
NVIDIA is projected to generate approximately $690 billion in revenue from hyperscalers and new cloud providers by 2027. Morgan Stanley estimates NVIDIA’s share of hyperscaler capital expenditures: approximately 79% for SPCX and 29% for AWS. SPCX and AWS together account for 54% of NVIDIA’s hyperscaler revenue, with the remaining 46% coming from Microsoft, Oracle, Meta, and Google.
NVIDIA's data center revenue in 2027 is projected at $630.9 billion, with the hyperscale segment at $337.5 billion, accounting for 53.5%. Morgan Stanley believes NVIDIA is trading at 15 times earnings per share for FY28, and its valuation is not expensive—stock price growth can be driven solely by earnings growth without requiring multiple expansion.
Other beneficiaries include Broadcom, AMD, Micron, Samsung, and SK Hynetics. AI chips, memory, networking, and ODMs are capturing the majority of capital expenditures. Industrial goods and power suppliers are seeing increasing exposure to data centers.
Slowing in 2028 does not equal a peak
Capital expenditures are projected to grow by 14% in 2028, sparking market concerns that AI investment may have peaked. Morgan Stanley believes 2027 will be a pivotal year for adoption, as AI’s productivity opportunities for businesses and individuals continue to expand. Forward profit margin expectations improve most notably among companies with strong AI adoption and significant pricing power.
The risk lies in power bottlenecks. Morgan Stanley’s 2027 $1.6 trillion capital expenditure assumption assumes every ordered chip can be powered and operational. Powering AI models show that, after accounting for the time required to implement power solutions, the U.S. will still face a net shortfall of 32 GW by 2028 and approximately 72 GW by 2029. Power capacity is lagging behind chip deliveries, creating a timing mismatch risk for spending.
Storage, networking, optical modules, and ODM servers are most sensitive to power walls. Power solution providers are relatively advantaged. Capital expenditures may shift overseas, and power constraints in the U.S. will drive hyperscalers to build facilities abroad.
Leadership in AI is shifting from pure enablers to a mix of enablers and adopters, and then to adopters. S&P 500 sales growth is projected at 9% in 2027, declining to approximately 7% when excluding AI investments—still consistent with nominal GDP growth and historical sales growth trends. AI spending is driving incremental growth, and the index-wide diffusion is now fully underway.
Whether the slowdown in 2028 will be amplified by power bottlenecks is a key variable to watch.
Disclaimer
This article is a compilation and interpretation by Chaoxiang Research of a third-party brokerage research report (Morgan Stanley, October 20, 2026), combined with publicly available market information. The ratings, price targets, earnings forecasts, and related judgments cited herein reflect the views of the brokerage’s analysts and represent the position of their respective institution; they do not reflect the views of Chaoxiang Research nor constitute any investment advice.
The market carries risks; make decisions independently. This article should not be used as a basis for buying or selling any securities.