Morgan Stanley: Midterm elections reshape where the AI buildout gets built
As seen on the 24/7 Wall St. homepage on November 10, 2026.
Big Political Shift, Narrow Economic Impact
- Democrats swept Congress but tariffs, immigration and deregulation stay under executive authority, limiting macro impact
- Texas and Ohio executive turnover puts data center permitting in play; some projects risk slipping from 2028 to 2029
- Buildout geography shifts: Taiwan and Korea in chips, Mexico in server assembly, Japan and Europe in power gear
- Full rollback of SNAP and Medicaid cuts would add under half a point to real spending growth; deficits stay near 6% of GDP
Morgan Stanley's read is that the election shifts where AI capacity gets built, with power, permitting and local politics deciding which projects proceed. For anyone long the buildout, demand holds while timing and location carry the risk, and Asian trade data is the lead indicator to watch on the investment cycle.
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The midterm results handed Democrats control of Congress, but Morgan Stanley's economics team argues the more consequential shift for investors is happening at the state level. Because tariffs, immigration, and the bulk of the regulatory agenda remain under executive authority, the near-term aggregate economic impact is narrower than the political headlines suggest.
Texas and Ohio are the specific states to watch. Executive power in both flipped to Democrats while legislatures did not, and some Republicans ran explicitly on anti-data center platforms. Morgan Stanley sees a real risk that certain AI infrastructure projects slip from a 2028 completion window into 2029, though the firm says it remains constructive on the overall buildout.
The more lasting consequence is geographic. Where capacity gets built is shifting: Taiwan and Korea anchor chips and memory, Mexico handles server assembly, Southeast Asia is gaining ground in networking and optical equipment, and Japan and Europe are increasingly involved in semiconductor equipment and power infrastructure. A deepening U.S. power shortfall pushes additional demand toward Asia and EMEA, a dynamic Morgan Stanley's equity analysts were already flagging before the election.
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On the fiscal side, the firm sees limited macro consequence even in a scenario where Democrats reverse scheduled SNAP and Medicaid cuts entirely. A full rollback of the measures set to take effect in January 2027 would add less than half a percentage point to real spending growth.
For investors positioned in the AI infrastructure trade, Morgan Stanley identifies Asian trade data as the lead indicator to monitor. U.S. AI imports have been a key driver of export growth across Asia, so shifts in those flows, including the already-visible broadening from microchips to wider Korean exports, will be an early read on how the investment cycle evolves through the next permitting and policy cycle.
