The wave of AI capital expenditures is reshaping economic resilience, and Morgan Stanley has raised its earnings forecast for U.S. stocks.

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The boom in AI infrastructure construction is fundamentally changing the sensitivity of the US economy to prices and financing costs, and is driving a significant upward revision in corporate earnings expectations.

Andrew Sheets, Chief Cross-Asset Strategist at Morgan Stanley, pointed out in the bank’s 2026 mid-term outlook report that the US economy is demonstrating unexpected resilience, with the core driving force being a wave of AI-centered capital expenditures. The bank has raised its S&P 500 earnings growth forecast for 2026 sharply from the previous 17% to 23%, and at the same time revised its US economic growth expectation for the same period from 1.8% to 2.3%.

Behind this round of upgrades is a phenomenon defined by Morgan Stanley as “inelastic demand”—that is, the ability of businesses and consumers to cope with higher prices, higher financing costs, and even higher geopolitical risks is far greater than the market expected. Andrew Sheets believes this feature is having profound implications for investment logic across equities, bonds, and commodities in the current market environment.

AI Capital Expenditure Is Expanding Far Beyond Previous Expectations

AI infrastructure investment is the main focus of the report. According to the latest estimates, capital expenditures by large US hyperscale cloud companies will reach $805 billion in 2026, almost doubling last year's forecast of $433 billion, twice that of 2025’s actual spending, and three times the level in 2024. Looking ahead, the bank expects this figure to break $1.1 trillion in 2027 and approach $1.3 trillion in 2028.

Even more noteworthy is that this investment acceleration is occurring against a backdrop of comprehensive cost increases. From copper materials and gas turbines to memory chips, key component prices have risen steeply, but this has not materially dampened enthusiasm for investing in AI. Andrew Sheets defines this price-insensitivity in demand as "inelastic," and points out that AI investing possesses a dual nature of being both an “essential” and a “highly coveted” item—companies are eager to grasp the next-generation core technology while fearing falling behind in the competition.

Rising financing costs have also failed to halt this trend. In 2026, technology companies’ bond issuance will hit a historic record, even as yields continue to rise. Andrew Sheets believes that, for such a critical strategic priority, whether the borrowing cost is 5.50%, 5.75% or 6.00% has become a secondary consideration.

Earnings Upgrades Aren’t Limited to AI; Economic Growth Expectations Rise in Tandem

The spillover effect of AI capital expenditures is directly reflected in macroeconomic data. AI capital expenditures have led Morgan Stanley to raise its forecast for US business fixed investment growth in 2026 from 3% six months ago to 7%, more than doubling, which is a key support for the bank’s upward revision of the full-year economic growth outlook.

On the earnings side, the combination of "higher demand plus higher prices" is providing a positive boost to corporate profit margins. The Korean stock market (home to many core AI suppliers) has a consensus profit growth forecast for 2026 as high as 235%, and many of the most representative 2026 stock investment opportunities are concentrated in the AI supply chain. Notably, strong profits aren’t limited only to AI beneficiaries—the median EPS growth of Russell 3000 stocks also tracks at 10%.

For 2027 economic growth expectations, the forecast was raised from 2.0% to 2.6%, indicating continuing optimism about US mid-term momentum.

Resilience in Consumer Demand Is Also Notable, Energy Price Shock Is Limited

Inelastic demand isn’t exclusive to AI investment; it is also evident on the consumer end. Despite a significant rise in US gasoline prices, there has been little reduction in driving or consumer behavior. US gasoline consumption in April 2026 was basically flat compared to April 2025, and retail sales data excluding oil and gas also beat expectations.

Air travel data further supports this observation. As of April 2026, US airfare prices had risen by 20.7% year-on-year, airlines successfully passed higher fuel costs onto consumers, and there were no significant signs of shrinking demand.

A strong balance sheet is the key to supporting such consumer resilience—technology firms and households alike are flush with cash, US household wealth is at historical highs, and European savings rates are also at historical highs.

Boundaries of Inelastic Forces: Bonds and Central Bank Policy Face Potential Challenges

The aforementioned inelastic forces are most prominent in the US, supporting a preference for US equities relative to other markets in global asset allocation. Meanwhile, the continued strength in energy demand creates upward pressure on oil prices, and the bank believes that going long oil prices is an effective hedge for its overall cross-asset bullish stance.

However, these forces also bring uncertainty for bond markets and the paths of central bank policies. The baseline judgment is that AI-related categories have a relatively small weighting in the inflation basket, so inflation is expected to fall back in the second half of 2026, giving the ECB, Bank of England, and Bank of Japan more policy space than current market pricing suggests.

But Andrew Sheets also warns of tail risks: If inelastic forces are even stronger and more persistent than expected, they could challenge forecasts for policy paths and the judgment that bond yields will fall. He summarizes the core issue as: what the market really needs to ask may not be whether prices are high enough to affect demand, but whether demand itself has become too strategic, too indispensable, or too financially capable to even care about price.

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