AI Capital Spending Set to Pass US Defense Budget in 2027, Morgan Stanley Projects

Morgan Stanley projects that combined capital expenditure from Alphabet, Amazon, Meta, Microsoft, and Oracle will reach roughly $1.1 trillion in 2027, or about 3.2% of United States gross domestic product. At that level, the five companies would spend more on data centers, accelerators, and power than the federal government spends on defense, which is near 2.6% of output. Morgan Stanley recently revised the 2026 figure for the same five companies up to about $805 billion, from an earlier $765 billion.

The comparison sets a frame of reference rather than an equivalence. Defense spending is a single federal budget line. The combined total for these large cloud-computing companies, known as hyperscalers, is discretionary corporate investment that they can cut in a downturn. What makes the number consequential is the pace. Private AI infrastructure spending moves from roughly half of defense outlays to above them in about two years, and it is concentrated in a small number of companies.

The open question for engineers and investors is coverage. The decisive measure is deduplicated end-customer revenue, and whether its margin covers the depreciation of hardware that is replaced on a roughly three-to-five-year cycle. Reporting through 2026 has repeatedly flagged a widening gap between capital spending and booked AI revenue, even as that same spending has become a large share of measured GDP growth.

Two things are verified. The spending trajectory is disclosed by the companies, and the analyst projection is a forecast rather than an outcome. What is asserted rather than proven is that the revenue to justify the spending arrives on schedule.