‘Capital alone no longer clears a site’: Morgan Stanley says data centers’ big money era is over

Morgan Stanley has warned that the era of cheap data centers in America is ending. In an Aug. 17 research report, the investment bank stated that capital alone no longer clears a site, as community resistance to data centers has grown into a material development risk. The warning comes at a critical time in the race to dominate AI technology, with the U.S. and China competing for global supremacy in this space.

The report, written by strategist Michelle Weaver and her team, highlights the need for developers to "underwrite" political backlash like they would land, power, or labor costs. This comes as the U.S. and China race to build AI infrastructure, a critical component of the technology's development and deployment.

Despite the federal government's commitment to supporting data-center development through permitting reform, energy policy, and industrial incentives, Morgan Stanley believes the real constraint is the accumulation of local decisions that federal policy cannot address. The financial impact is significant, with the six largest hyperscalers—Microsoft, Amazon, Alphabet, Meta, Oracle, and CoreWeave—projected to spend roughly $785 billion on capital expenditures in 2026 and approaching $1 trillion in 2027, with total data-center lease commitments exceeding $1.2 trillion.

The primary drivers of resistance to data-center development are affordability, environmental concerns, and quality-of-life impacts. Texas and Virginia have taken steps to address these concerns, with Texas' Public Utility Commission and grid operator ERCOT auditing all data-center projects, and Virginia requiring Dominion Energy to develop a mandatory contribution-in-aid-of-construction mechanism for direct-connect transmission assets.

These measures may cause near-term disruptions but are unlikely to fundamentally alter demand for data-center infrastructure.