Morgan Stanley sees AI financing as defining summer 2026

Investing.com -- Morgan Stanley analysts said summer 2026 may be remembered for major developments in AI financing rather than new technology releases, as capital markets rapidly adapted to fund the AI infrastructure buildout.

The four largest hyperscalers, Microsoft (NASDAQ: MSFT), Alphabet (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), and Meta (NASDAQ: META), are expected to increase total capital expenditures by 57% in 2027 compared to 2026, according to Morgan Stanley equity research estimates. The spending plans reflect growing belief that these investments can generate returns on invested capital of at least 25%.

The gap between capital deployment and revenue generation continues to pressure near-term cash generation. Morgan Stanley analysts' 2027 free cash flow estimates for the four hyperscalers have moved lower, creating a widening financing gap that suggests AI-related credit issuance will need to increase before cash flows catch up.

Credit spreads for hyperscalers widened notably during the summer, reaching roughly 35 basis points wider for higher-quality issuers and about 50 basis points wider for lower-rated names at one point, before rallying sharply in the last two weeks.

Spread widening was most pronounced in higher-quality unsecured bonds, where issuance volumes increased sharply. Data center asset-backed securities and commercial mortgage-backed securities saw more modest spread widening, backed by operating assets with established contractual cash flows.

The major hyperscalers, with average ratings of roughly AA, have substantial financing needs combined with significant ratings flexibility. Morgan Stanley analysts said these issuers, including semiconductor companies such as Nvidia (NASDAQ: NVDA) and Broadcom (NASDAQ: AVGO), are relatively insensitive to modest changes in borrowing costs given their return expectations.

Lower-rated issuers such as Oracle (NYSE: ORCL), rated mid to low BBB across agencies, and data center developers have less balance-sheet flexibility and lower tolerance for higher funding costs.

The next phase of AI financing is expected to shift toward compute equipment, particularly servers and chips, as well as energy assets. Recent developments include Nvidia's announced compute infrastructure financing platform and a $35 billion chip financing transaction backed by Broadcom.

Morgan Stanley expects high-quality issuers to increasingly provide backstops, credit support arrangements, and residual value guarantees to help private capital finance larger pools of AI infrastructure assets.

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