The Structural Forces Moving Capital

**Michelle Weaver** (0:00)
Welcome to Thoughts on the Market. I'm Michelle Weaver, Morgan Stanley's US Thematic and Equity Strategist.

**Michael Zezas** (0:05)
I'm Michael Zezas, Co-Director of the Morgan Stanley Institute and Deputy Global Head of Morgan Stanley Research.

**Jessica Alsford** (0:11)
And I'm Jessica Alsford, Morgan Stanley's Chief Sustainability Officer and also Co-Director of the Morgan Stanley Institute.

**Michelle Weaver** (0:17)
Today, how AI, energy, geopolitics, and industrial investment are competing for scarce resources, and what that competition could mean for markets. It's Friday, July 31st at 10 a.m. in New York.

**Jessica Alsford** (0:29)
And 3 p.m. in London.

**Michelle Weaver** (0:33)
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?

**Michael Zezas** (0:54)
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.

**Michelle Weaver** (1:23)
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?

**Jessica Alsford** (1:35)
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 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.

**Michelle Weaver** (2:15)
Mike, how is that intersection that Jess spoke about between AI, energy and geopolitics altering the way that companies are thinking about investing?

**Michael Zezas** (2:24)
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 the 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 trades 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.

**Michelle Weaver** (3:52)
One 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 York's worth of power.
Jess, how significant of a limiting factor is power becoming?

**Jessica Alsford** (4:10)
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.
And it looks like there won't be one universal solution. You've got natural gas, nuclear, renewables, storage, microgrids, they're all going to need to play a role. And 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.

**Michelle Weaver** (4:50)
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?