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[00:01]
A
Welcome to Thoughts on the Market. I'm Michelle Weaver, Morgan Stanley's US Thematic and Equity Strategist.
[00:05]
B
I'm Michael Zezas, Co Director of the Morgan Stanley Institute and Deputy Global Head of Morgan Stanley Research.
[00:11]
C
And I'm Jessica Alsford, Morgan Stanley's Chief Sustainability Officer and also Co Director of the Morgan Stanley Institute.
[00:17]
A
Today, how AI energy, geopolitics and industrial investment are competing for scarce resources and what that competition can mean for markets. It's Friday, July 31, at 10am in
[00:29]
C
New York and 3pm in London.
[00:33]
A
Mike and Jess, as co directors, you speak with people across the firm to identify the biggest questions facing companies and investors, especially the important ones that may not have clear answers yet, and to understand how those questions are shaping client conversations. Mike, what's one of the questions that you think investors are wrestling with the most right now?
[00:55]
B
So, one of the biggest questions is how several major investment cycles can happen at the same time. AI, energy, infrastructure, manufacturing, and defense may all be competing for the same power, the same skilled labor, equipment and capital. So investors need to look beyond each theme in isolation and ask where constraints could delay projects, raise costs, or redirect spending, and which companies are best positioned to manage all of that.
[01:23]
A
Since the Institute began, you've examined a number of topics, including AI, energy resilience and geopolitical fragmentation, just to name a few. Jess, which topic has been the most compelling to you?
[01:36]
C
It's difficult to pick one because to be honest, for me, it's really the way that AI, energy resilience and geopolitics have all really become one story. If you think about the energy transition, which has been playing out for a number of years, but but now we also have the AI buildout and that depends on reliable and affordable power, and then geopolitical shocks which are demonstrating the need for countries to have energy security. So if you put all of this together and you can really see that there is a huge need to scale the global energy system, but using all types of power available to us, including renewables and nuclear.
[02:16]
A
Mike, how is that intersection that Jess spoke about between AI, energy and geopolitics all altering the way that companies are thinking about investing?
[02:24]
B
So geopolitical shocks, they're more norm than exception. Now, the situations in Iran, Ukraine, Venezuela, they all reflect an evolving international order where the US is less interested than it used to be in preserving global security and trade standards. And that's a particular problem in a world where companies and governments spent much of the last 50 years optimizing to benefit from globalization. So Basically looking for the lowest cost way to produce things, sourcing materials and labor in the most efficient way possible, presuming that the frictions in international goods and services trade would just keep getting lower. That's obviously not the case now. And whether it's a good idea or not, the trend is toward governments leaning into industrial policy to prioritize supply chain security and protect whatever it sees as their national competitive advantages. And really that's correlated with higher trade barriers. So that means that while companies are still focused on efficiency, they have to build resilience through more regional supply chains, greater redundancy and investment in strategically important capacity. So the practical message from our teams is to map critical dependencies, diversify where possible, and be realistic about the extra cost of resilience, rather than assuming the old globalization model will simply return One
[03:52]
A
of the clearest constraints on the AI buildout is energy. Our thematic research team is estimating a nearly 40 gigawatt shortfall in power needed for data centers. For context, this is multiple New Yorks worth of power. Jess, how significant of a limiting factor is power becoming?
[04:10]
C
Power is definitely becoming a strategic constraint. If you think about grid connections, these can take years to set up, and so access to power really is going to determine where facilities are built and how quickly they're able to come online. It looks like there won't be one universal solution. You've got natural gas, nuclear, renewables, storage, micro grids. They're all going to need to play a role. For companies, that means that they really are going to have to be planning power alongside the site and financing. For investors, it means focusing on reliability, affordability and permitting, not just headline demand.
[04:50]
A
So AI, energy and geopolitics can no longer be considered in isolation. As countries and companies rethink where they source, build and invest, where do you see the biggest opportunities emerging?
[05:01]
C
The opportunity is likely to be broader than any single sector, to be honest. And the Institute has shown that capital really needs to be flowing towards more resilient supply chains as well as new productive capacity and also the infrastructure that supports both of these. This covers power grids, automation, logistics as well as data. I'd also say that location matters too. And companies need to be able to weigh political stability as well as skilled labor, reliable energy and policy support. Investors should be looking for markets and businesses that can turn those advantages into durable returns.
[05:41]
A
The Institute has also looked at founders as a source of economic information. Jess, what can their decisions reveal before those changes appear in traditional economic data?
[05:51]
C
So founders are often making decisions at the leading edge of growth and capital formation, and so their behavior can provide an early read on both risk appetite and also financing conditions. If we take the current macro environment as an example of this, the Institute has shown that many founders are adapting rather than simply waiting, and this means extending fundraising timelines, broadening investor conversations, and considering private credit, structured equity or tender offers. For companies, the takeaway really is to preserve financing flexibility, and for investors, it's to watch how those choices can reshape private market liquidity.
[06:32]
A
Mike to bring this back to where we started, if power, labor and capital are all becoming more constrained, what should investors be watching most closely?
[06:42]
B
Yeah, I'd watch whether capital spending plans are being delayed or resized or redirected in some way, and I think importantly what the reasons would be for any of those things happening. Is there a constraint around power or labor or equipment permitting or financing? Those details help distinguish whether you'd be looking at temporary setbacks or a structural shift. So something that would signal that we've built too much capacity in AI or manufacturing relative to demand. And that's the type of thing that would be a real headwind to the economic outlook and potentially create problems in the credit markets. But to be clear, we don't see demand flagging anytime soon and so forth. For investors, it's less about whether to be bullish or bearish on the outlook for the markets and the economy, and it's more about looking for companies that are durable beneficiaries of these trends. So those are ones with secure inputs, flexible balance sheets, and realistic return thresholds?
[07:43]
A
Absolutely. As Mike said, we don't see demand slowing and we're seeing a lot of encouraging data points around AI adoption. One analysis we did recently shows that around 25% of S& P companies are now quantifying the benefits they're seeing from AI adoption, and this diffusion story is only going to continue to grow. Mike Jess, thanks for joining me.
[08:04]
B
Thanks Michelle.
[08:05]
A
It's great speaking with you both and to our listeners. Thanks for tuning in. If this is all piquing your interest, you can find the Institute's articles, roundtables and future work on Morgan Stanley's website. And as always, if you enjoy thoughts on the market, please leave us a review and share the podcast with a friend or colleague. The preceding content is informational only and based on information available when created. It is not an offer or solicitation, nor is it tax or legal advice. It does not consider your financial circumstances and objectives and may not be suitable for you.

Summary5 min read

Thoughts on the Market

Episode: The Structural Forces Moving Capital

Date: July 31, 2026
Host & Guests:

Michelle Weaver, US Thematic and Equity Strategist (Host)
Michael Zezas, Co-Director, Morgan Stanley Institute; Deputy Global Head of Morgan Stanley Research
Jessica Alsford, Chief Sustainability Officer; Co-Director, Morgan Stanley Institute

Episode Overview

This episode explores how key structural forces—specifically the rise of artificial intelligence (AI), the demand for energy, ongoing geopolitical shifts, and new waves of industrial investment—are increasingly competing for limited resources such as power, skilled labor, equipment, and capital. The discussion centers on the implications for markets, investment strategies, and how both companies and investors can adapt to this rapidly evolving landscape.

Key Discussion Points & Insights

1. Multiple Investment Cycles Colliding

[00:54] Michael Zezas:

Major investment cycles in areas like AI, energy infrastructure, manufacturing, and defense are now happening simultaneously.
These cycles are "competing for the same power, the same skilled labor, equipment and capital."
This creates new kinds of constraints that may delay projects, raise costs, or redirect spending.
Investors must "look beyond each theme in isolation" and focus on which companies are best positioned to manage these overlapping demands.

Notable Quote:

"Investors need to look beyond each theme in isolation and ask where constraints could delay projects, raise costs, or redirect spending."
— Michael Zezas, [00:54]

2. AI, Energy, and Geopolitics Are Converging

[01:35] Jessica Alsford:

AI, energy resilience, and geopolitics are "really one story" now.
The energy transition, AI buildout, and geopolitical instability are interrelated.
AI relies on affordable, reliable power—tying its expansion to the broader energy transition.
Geopolitical shocks highlight the need for energy security, impacting both company and country strategies.

Notable Quote:

"If you put all of this together, you can really see that there is a huge need to scale the global energy system, using all types of power available to us, including renewables and nuclear."
— Jessica Alsford, [01:35]

3. Shifting Global Order & Rise of Industrial Policy

[02:24] Michael Zezas:

Geopolitical shocks are "more norm than exception" now (Iran, Ukraine, Venezuela).
The U.S. has reduced commitment to global security and trade standards, shifting away from the past 50 years of globalization.
Governments are prioritizing industrial policy, focusing on supply chain security and national competitive advantages over pure cost-efficiency.
This shift leads to higher trade barriers, increased regional supply chains, and extra cost for resilience.
Practical advice: "map critical dependencies, diversify where possible, and be realistic about the extra cost of resilience."

4. Energy as a Critical Constraint on AI Expansion

[03:52] Michelle Weaver & [04:10] Jessica Alsford:

A nearly 40 gigawatt shortfall in power for data centers is expected—"multiple New Yorks worth of power."
Grid connections can take years, making power a "strategic constraint" for AI and data center expansion.
No one-size-fits-all solution: natural gas, nuclear, renewables, storage, and microgrids will all play a role.
Companies must plan power access alongside site selection and financing.
Investors should focus on "reliability, affordability and permitting—not just headline demand."

Notable Quote:

"Power is definitely becoming a strategic constraint. If you think about grid connections, these can take years to set up, and so access to power really is going to determine where facilities are built and how quickly they're able to come online."
— Jessica Alsford, [04:10]

5. Opportunities: Resilience and New Infrastructure

[05:01] Jessica Alsford:

Opportunities span beyond individual sectors—capital should flow into resilient supply chains, new productive capacity, and the infrastructure to support them (including power grids, automation, logistics, and data).
Location is critical: companies must weigh political stability, skilled labor, reliable energy, and policy support.
Investors should seek out companies that can "turn those advantages into durable returns."

6. Founders as Early Indicators

[05:41] Michelle Weaver & [05:51] Jessica Alsford:

Founders’ actions serve as a "leading edge" of economic trends.
They reveal early signals on risk appetite and financing conditions—such as extending fundraising timelines, broadening investor bases, and pursuing alternative financing like private credit or structured equity.
For companies: preserve financing flexibility.
For investors: monitor these behaviors to understand shifts in private market liquidity.

7. What Investors Should Watch

[06:32] Michelle Weaver & [06:41] Michael Zezas:

Keep a close eye on whether "capital spending plans are being delayed, resized, or redirected."
Key is understanding the reasons behind changes: Is it power, labor, equipment, permitting, or financing constraints?
Distinguishing between temporary setbacks and structural shifts is essential for anticipating market headwinds.
Right now, "we don't see demand flagging anytime soon," so focus should be on companies that are "durable beneficiaries" with secure inputs, flexible balance sheets, and realistic return thresholds.

Notable Quote:

"For investors, it’s less about whether to be bullish or bearish on the outlook...it’s more about looking for companies that are durable beneficiaries of these trends."
— Michael Zezas, [07:31]

8. AI Adoption Remains Robust

[07:43] Michelle Weaver:

An internal analysis shows that 25% of S&P companies are now quantifying tangible benefits from AI adoption.
The diffusion of AI across sectors is poised to continue accelerating.

Notable Quote:

"One analysis we did recently shows that around 25% of S&P companies are now quantifying the benefits they're seeing from AI adoption, and this diffusion story is only going to continue to grow."
— Michelle Weaver, [07:43]

Memorable Moments

Michelle Weaver’s punchy contextualization of the energy shortfall: "multiple New Yorks worth of power" needed for AI data centers ([03:52]).
Jessica Alsford’s repeated emphasis on the interconnectedness of AI, energy, and geopolitics (“really one story” [01:35]).
Michael Zezas outlining the shift from cost-optimization in globalization to resilience and security ([02:24], [06:41]).

Key Timestamps

[00:54] – Zezas on overlapping investment cycles and new constraints
[01:35] – Alsford on convergence of AI, energy, and geopolitics
[02:24] – Zezas on end of globalization and rise of industrial policy
[03:52] – Weaver & Alsford on energy constraints and AI expansion
[05:01] – Alsford on broad investment opportunities and infrastructure
[05:51] – Alsford on founders as early economic indicators
[06:41] – Zezas on what investors should monitor
[07:43] – Weaver on S&P companies’ AI adoption findings

Summary Conclusion

This episode provides a big-picture view of the complex interplay between AI growth, the energy transition, geopolitical fragmentation, and new industrial investment cycles. Rather than viewing these themes in isolation, the panelists urge both companies and investors to focus on resilience, infrastructure, and realistic assessments of risk and opportunity. As resource constraints become more apparent, the most successful market participants will be those adapting early, diversifying exposures, and prioritizing agility and supply chain security.

Listeners are encouraged to seek out markets and businesses capable of translating these structural advantages into sustained returns.

Loading summary

Transcript22 lines

[00:01]
A
Welcome to Thoughts on the Market. I'm Michelle Weaver, Morgan Stanley's US Thematic and Equity Strategist.
[00:05]
B
I'm Michael Zezas, Co Director of the Morgan Stanley Institute and Deputy Global Head of Morgan Stanley Research.
[00:11]
C
And I'm Jessica Alsford, Morgan Stanley's Chief Sustainability Officer and also Co Director of the Morgan Stanley Institute.
[00:17]
A
Today, how AI energy, geopolitics and industrial investment are competing for scarce resources and what that competition can mean for markets. It's Friday, July 31, at 10am in
[00:29]
C
New York and 3pm in London.
[00:33]
A
Mike and Jess, as co directors, you speak with people across the firm to identify the biggest questions facing companies and investors, especially the important ones that may not have clear answers yet, and to understand how those questions are shaping client conversations. Mike, what's one of the questions that you think investors are wrestling with the most right now?
[00:55]
B
So, one of the biggest questions is how several major investment cycles can happen at the same time. AI, energy, infrastructure, manufacturing, and defense may all be competing for the same power, the same skilled labor, equipment and capital. So investors need to look beyond each theme in isolation and ask where constraints could delay projects, raise costs, or redirect spending, and which companies are best positioned to manage all of that.
[01:23]
A
Since the Institute began, you've examined a number of topics, including AI, energy resilience and geopolitical fragmentation, just to name a few. Jess, which topic has been the most compelling to you?
[01:36]
C
It's difficult to pick one because to be honest, for me, it's really the way that AI, energy resilience and geopolitics have all really become one story. If you think about the energy transition, which has been playing out for a number of years, but but now we also have the AI buildout and that depends on reliable and affordable power, and then geopolitical shocks which are demonstrating the need for countries to have energy security. So if you put all of this together and you can really see that there is a huge need to scale the global energy system, but using all types of power available to us, including renewables and nuclear.
[02:16]
A
Mike, how is that intersection that Jess spoke about between AI, energy and geopolitics all altering the way that companies are thinking about investing?
[02:24]
B
So geopolitical shocks, they're more norm than exception. Now, the situations in Iran, Ukraine, Venezuela, they all reflect an evolving international order where the US is less interested than it used to be in preserving global security and trade standards. And that's a particular problem in a world where companies and governments spent much of the last 50 years optimizing to benefit from globalization. So Basically looking for the lowest cost way to produce things, sourcing materials and labor in the most efficient way possible, presuming that the frictions in international goods and services trade would just keep getting lower. That's obviously not the case now. And whether it's a good idea or not, the trend is toward governments leaning into industrial policy to prioritize supply chain security and protect whatever it sees as their national competitive advantages. And really that's correlated with higher trade barriers. So that means that while companies are still focused on efficiency, they have to build resilience through more regional supply chains, greater redundancy and investment in strategically important capacity. So the practical message from our teams is to map critical dependencies, diversify where possible, and be realistic about the extra cost of resilience, rather than assuming the old globalization model will simply return One
[03:52]
A
of the clearest constraints on the AI buildout is energy. Our thematic research team is estimating a nearly 40 gigawatt shortfall in power needed for data centers. For context, this is multiple New Yorks worth of power. Jess, how significant of a limiting factor is power becoming?
[04:10]
C
Power is definitely becoming a strategic constraint. If you think about grid connections, these can take years to set up, and so access to power really is going to determine where facilities are built and how quickly they're able to come online. It looks like there won't be one universal solution. You've got natural gas, nuclear, renewables, storage, micro grids. They're all going to need to play a role. For companies, that means that they really are going to have to be planning power alongside the site and financing. For investors, it means focusing on reliability, affordability and permitting, not just headline demand.
[04:50]
A
So AI, energy and geopolitics can no longer be considered in isolation. As countries and companies rethink where they source, build and invest, where do you see the biggest opportunities emerging?
[05:01]
C
The opportunity is likely to be broader than any single sector, to be honest. And the Institute has shown that capital really needs to be flowing towards more resilient supply chains as well as new productive capacity and also the infrastructure that supports both of these. This covers power grids, automation, logistics as well as data. I'd also say that location matters too. And companies need to be able to weigh political stability as well as skilled labor, reliable energy and policy support. Investors should be looking for markets and businesses that can turn those advantages into durable returns.
[05:41]
A
The Institute has also looked at founders as a source of economic information. Jess, what can their decisions reveal before those changes appear in traditional economic data?
[05:51]
C
So founders are often making decisions at the leading edge of growth and capital formation, and so their behavior can provide an early read on both risk appetite and also financing conditions. If we take the current macro environment as an example of this, the Institute has shown that many founders are adapting rather than simply waiting, and this means extending fundraising timelines, broadening investor conversations, and considering private credit, structured equity or tender offers. For companies, the takeaway really is to preserve financing flexibility, and for investors, it's to watch how those choices can reshape private market liquidity.
[06:32]
A
Mike to bring this back to where we started, if power, labor and capital are all becoming more constrained, what should investors be watching most closely?
[06:42]
B
Yeah, I'd watch whether capital spending plans are being delayed or resized or redirected in some way, and I think importantly what the reasons would be for any of those things happening. Is there a constraint around power or labor or equipment permitting or financing? Those details help distinguish whether you'd be looking at temporary setbacks or a structural shift. So something that would signal that we've built too much capacity in AI or manufacturing relative to demand. And that's the type of thing that would be a real headwind to the economic outlook and potentially create problems in the credit markets. But to be clear, we don't see demand flagging anytime soon and so forth. For investors, it's less about whether to be bullish or bearish on the outlook for the markets and the economy, and it's more about looking for companies that are durable beneficiaries of these trends. So those are ones with secure inputs, flexible balance sheets, and realistic return thresholds?
[07:43]
A
Absolutely. As Mike said, we don't see demand slowing and we're seeing a lot of encouraging data points around AI adoption. One analysis we did recently shows that around 25% of S& P companies are now quantifying the benefits they're seeing from AI adoption, and this diffusion story is only going to continue to grow. Mike Jess, thanks for joining me.
[08:04]
B
Thanks Michelle.
[08:05]
A
It's great speaking with you both and to our listeners. Thanks for tuning in. If this is all piquing your interest, you can find the Institute's articles, roundtables and future work on Morgan Stanley's website. And as always, if you enjoy thoughts on the market, please leave us a review and share the podcast with a friend or colleague. The preceding content is informational only and based on information available when created. It is not an offer or solicitation, nor is it tax or legal advice. It does not consider your financial circumstances and objectives and may not be suitable for you.