The AI trade wobbles: capex keeps climbing while traders rotate defensive

Capex holds, stocks don't

Morgan Stanley's chief economists for the US, Europe and Asia made an unusual claim on the bank's roundtable podcast: AI-related capital expenditure is, in their view, currently insensitive to both interest rates and geopolitics. The same panel named the counter-risk plainly: a potential AI over-investment cycle is the greatest long-term risk to the US economy. m:…0084

The market's answer arrived the same day. Meta reported stronger-than-expected third-quarter revenue, according to Emirates NBD's daily outlook — and traders sold the stock anyway. NAB's Gavin Friend said the market didn't like Meta's earnings one bit. Scotiabank's G10 desk counted the damage: Nasdaq futures down toward 2% on disappointing US tech earnings. Tesla, meanwhile, cut its 2026 capital expenditure forecast — a high-profile capex pullback landing the same day NAB noted Meta's fourth-quarter capex alone is projected at $75 billion. m:…9251 m:…8940 m:…9579

Money went where it always goes when tech sells off: bonds. US 10-year yields fell 16 basis points in the session, and Friend's line captured the day's logic — what's bad for AI and tech is good for bonds, with prices up and yields down. ING's FX Daily framed it as a subtle regime shift, with growth concerns beginning to outweigh inflation fears and global equity investors scaling back their tech exposure in favor of defensive sectors. m:…8940 m:…4823

The tech selloff bled into sovereign risk. French bond yields rose 6 basis points, widening the spread against other sovereigns, with Moody's expected to announce on France's credit rating at the end of the week and the French government postponing the budget vote in the National Assembly to November 3. And the oil spike has its own plumbing: oil transit costs from the Gulf to China reached $35 a barrel — 20 times the previous decade's average, per NAB's Morning Call. m:…8940

The defensive bid is everywhere

FX desks saw the same rotation. Scotiabank's G10 note described risk aversion dominating, with the havens JPY and CHF outperforming and the dollar mixed as G10 performance leaned toward risk aversion. ING's daily piece said markets are rotating into defensive currencies as growth concerns replace inflation fears. m:…9579 m:…4823

One corner of the capex story still has buyers: Morgan Stanley's panel noted US manufacturing investment is broadening beyond AI, driven by supply-chain redundancies and reshoring. The old-economy capex cycle continues even as the AI trade wobbles. m:…0084

Morgan Stanley's panel had a reason the growth nerves are spreading: European consumer spending is at risk of significant retracement from persistent energy price increases, and European wage growth is still reflecting past inflation — a lag in the wage-setting process. In China, consumer debt is contracting at a 1.5% rate, and the panel does not expect policymakers to answer with a major fiscal expansion. Rate-insensitive capex, meet the retrenching consumer. m:…0084

What to weigh

This suggests two things can be true at once, and the evidence says they are: capex can keep flowing — Morgan Stanley's economists insist it is rate- and geopolitics-insensitive — while multiples compress because traders doubt the return. The panel's own caveat, the over-investment cycle as the top long-term risk, is the bridge between the two views. m:…0084

The wildcard is energy. Brent settled at $108.82 a barrel on October 21 and rose toward $110 in early trading the next day, per Emirates NBD. Morgan Stanley's panel warned that oil between $130 and $150 would force Asian governments to pass costs to consumers, threatening growth — the kind of backdrop that turns a defensive rotation into a durable one. m:…9251 m:…0084