"The 'AI frenzy' does not care about costs—this is currently the biggest macro influencing factor globally."

Morgan Stanley believes that the current global economy is being led by a kind of “inelasticity” demand that ignores prices, ignores interest rates, and disregards geopolitics, and its **absolute core engine is AI infrastructure construction**. On May 26, Morgan Stanley’s latest mid-year outlook report revealed a core logic powerful enough to reshape the global macro landscape: **AI infrastructure investment is displaying a rare “inelastic demand” characteristic**—no matter how copper, gas turbines, or memory chip prices soar, no matter the financing costs, tech giants’ capital expenditure not only hasn’t slowed, but has accelerated its expansion. This means global macro logic is being reshaped—**the AI frenzy not only drives U.S. economic growth and a sharp upgrade in corporate earnings expectations, but also gives tech giants the confidence to stay undeterred in the face of high borrowing and hardware costs.** This kind of “indifference to cost” strategic spending, coupled with the equally resilient consumption demand of American households, directly points to three core investment strategies: > **First**, overweight U.S. equities (over other global regions); **Second**, go long on crude oil as an excellent cross-asset hedge; **Third**, beware that such “inelastic demand” may pose disruptive risks to global central bank rate-cut paths and bond yield downtrend expectations. Morgan Stanley’s conclusion is thought-provoking: > **"For the market, the key issue may no longer be 'Have prices risen enough to impact demand,' but 'Has demand become so strategic, so indispensable, so cash-rich that price is simply irrelevant.'"** ## AI Capital Spending: The Scale Surpasses Everyone’s Imaginations Morgan Stanley’s data reveals a shocking leap in numbers. Just one year ago, the bank predicted that U.S. large-scale cloud companies’ total capital expenditure in 2026 would be **$433 billion**. Now, this figure has been revised to **$805 billion**—almost double. Even more breathtaking, this number keeps rising: projected to **$1.1 trillion** in 2027, and close to **$1.3 trillion** in 2028. (image) Vertically comparing, 2026’s capex is roughly **twice** 2025’s, **three times** that of 2024. What’s more, this acceleration occurs against a backdrop of rising costs. From copper and gas turbines to memory chips, the sharp rise in key components hasn’t diminished the market’s enthusiasm for AI in the slightest. **This is not a linear growth story, but an exponential arms race.** ## “Inelastic Demand”: Understanding the Core Concept of the AI Frenzy There’s an economic concept called “demand price elasticity”—when prices go up, demand usually drops. But “inelastic demand” describes a special state: **prices rise, yet demand remains unchanged**. This phenomenon usually appears in two scenarios: one is **necessities** (like electricity), the other is **extremely coveted items** (like concert tickets). Morgan Stanley points out that AI investment happens to possess both attributes: tech companies see AI as a strategic necessity to shape the future, and deeply fear the cost of “falling behind competitors,” as they dread lagging in the next technological wave. **This inelasticity even extends to financing costs.** In 2026, tech companies set a new record in bond issuance, even as market yields keep rising. The logic mirrors willingness to pay a premium for memory chips or electricity: **for such a critical strategic priority, whether borrowing costs are 5.50%, 5.75%, or 6.00% becomes secondary.** ## How Inelastic AI Demand Directly Drives U.S. Economic Growth Explosive growth in AI capital expenditure has left a clear mark in macro data. Morgan Stanley points out its forecast for U.S. business fixed investment growth in 2026 has been **raised from +3% to +7% over the last six months, more than doubling**. This revision is one of the main drivers behind the upward revision in overall GDP growth forecasts. Six months ago, Morgan Stanley expected U.S. economic growth in 2026 and 2027 to be 1.8% and 2.0% respectively. Now, these forecasts have been sharply revised up to 2.3% and 2.6%. In other words, amid ongoing geopolitical uncertainty, the resilience of the U.S. economy owes much to the anchoring effect of AI capex’s “inelastic demand.” ## Corporate Profits: High Demand + High Prices, a Dream Combination for Margins When it comes to corporate profits, “higher demand + higher prices” is the ideal formula for margin expansion. Morgan Stanley has raised its S&P 500 earnings growth forecast for 2026 from **+17%** to **+23%**. Notably, robust earnings are not limited to those directly benefiting from AI—the median earnings growth for Russell 3000 stocks is tracking at **+10%**. (image) There’s only one core explanation for this resilience: **demand has shown astounding “inelasticity” to high prices, high financing costs, and high geopolitical risks.** The robust balance sheets of tech firms and households allow cost-indifferent expansions to persist. **The core beneficiaries of the AI supply chain are particularly prominent.** South Korea’s stock market, home to many key AI parts suppliers, has a consensus 2026 earnings growth expected at **+235%**, making it one of the world’s most explosive single markets. ## Inelastic Demand Is Not Just AI: U.S. Consumers Also “Ignore Prices” This “inelasticity” is not unique to AI investment, it also permeates U.S. household consumption. Despite significant increases in U.S. gasoline prices, there’s almost no evidence consumers are driving less or curbing spending. **April 2026 U.S. gasoline consumption was nearly unchanged from April 2025**. Excluding oil and gas, last week’s U.S. retail sales data beat expectations. The airline industry also confirms this logic. Morgan Stanley analysts point out that by April 2026, U.S. ticket prices had risen **+20.7% year-over-year**, airlines succeeded in passing higher fuel costs onto consumers, with no apparent drop in demand. U.S. households hold **historically high levels of wealth**, and Europe’s savings rates are also at record highs, providing a strong balance sheet foundation for ongoing demand resilience. ## This Is a Signal of a Paradigm Shift Under the logic of the AI arms race, the traditional “rising prices → shrinking demand → cooling economy” transmission chain is partly failing. For investors, understanding and pricing this “inelastic demand” premium may be the most important macro task for the second half of 2026. Morgan Stanley explicitly points out that the above “inelastic demand” forces directly guide cross-asset allocation: > - **Relative advantage of U.S. equities:** Inelastic forces are most concentrated in the U.S., supporting a **preference for U.S. equities over other markets** in global allocations. > - **Commodities—upside risk for oil:** Energy demand remains strong, supply mobility restricted, oil prices face upward bias. Morgan Stanley believes that **going long oil is an attractive hedge to its overall constructive cross-asset view**. > - **Bonds and central bank policy—baseline scenario dovish, but upside risk exists:** Morgan Stanley’s baseline expects AI-related items to have relatively minor weight in inflation baskets, so inflation is likely to keep falling in the second half of 2026, supporting the ECB, BOE, and BOJ to pursue more dovish policy than market expects over the next 12 months, with bond yields likely to move lower. However, **the key risk is**: if these inelastic forces turn out stronger and more persistent than expected, they could challenge the above policy forecasts, and make the expected decline in bond yields fail. Risk Warning and Disclaimer: The market entails risks, investment must be prudent. This article does not constitute personal investment advice, nor does it take into account the special investment goals, financial conditions, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable to their specific circumstances. Investing accordingly is at your own risk.