Morgan Stanley Raises China Cloud Capex Forecast, Sees 43% y/y Growth in 2026

Overview

This is an outlook research report on China data centers and cloud capex. After 4Q25 results, the forecast was refreshed. The core conclusion is that China cloud capex will rise significantly in 2026, and after including Kingsoft Cloud it is expected to reach RMB 603 billion, representing 43% y/y growth.

Core views

The report's core view is that AI cloud demand and data center capacity expansion will drive faster domestic cloud capex in China; although China cloud capex is growing quickly, its 2026E scale is still only about 14% of US peers, implying that the Chinese market remains in a catch-up phase for cloud infrastructure investment.

Analysis framework

The report mainly uses a top-down capex forecasting approach, combining 4Q25 earnings updates, spending trends among cloud vendors and data center-related companies, and Morgan Stanley's estimation framework to refresh its 2026 China cloud capex forecast.

Methodology notes

• Forecast modelMSe Cloud Capex Forecast

  Updated 2026E cloud capex estimate after 4Q25 results

  The report explicitly states that after including Kingsoft Cloud, China cloud capex is expected to grow 43% y/y to RMB 603 billion in 2026.

• Relative comparisonChina-US Cloud Capex Scale Comparison

  China cloud capex as a share of US peers

  The report notes that, based on Morgan Stanley's estimate, 2026E China cloud capex is only about 14% of US peers, used to gauge the relative scale of China's cloud infrastructure investment.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China data center supply chain

  Direct beneficiary of cloud capex growth and capacity expansion

  Strengths

  Rising AI cloud demand, high capex growth, and increasing domestic capacity.

  Weaknesses

  Investment scale is still lower than that of US peers, and profitability realization across the chain remains to be seen.

  Comparison

  2026E China cloud capex is about 14% of US peers.

  Risks

  Demand falling short of expectations, slower capex growth, and changes in regulation or financing conditions.

• GDS Holdings Ltd (GDS.O)

  One of the relevant covered companies mentioned in the report disclosure

  Strengths

  Connected to the China data center theme.

  Weaknesses

  The excerpt does not provide the company's specific earnings forecast, rating, or target price.

  Comparison

  The disclosure page lists a price of US$39.23, but this cannot be used to infer a rating change.

  Risks

  Morgan Stanley disclosed that it had provided or received investment banking-related compensation involving GDS Holdings Ltd within the past 12 months; investors should watch for potential conflicts of interest.

Key data

• 2026E China cloud capexRMB 603 billionMorgan Stanley estimate after including Kingsoft Cloud.
• 2026E y/y growth43%Refreshed forecast after 4Q25 results.
• China cloud capex as a share of US peersabout 14%Based on Morgan Stanley's 2026E estimate.
• Related price disclosureGDS Holdings Ltd (GDS.O) US$39.23From the report disclosure page; not used as a target price in the main text.

Impact & implications

If the forecast is realized, the data center, cloud services, telecom infrastructure, and AI compute supply chains will benefit from a stronger capex cycle. The fact that China cloud capex remains well below the US also supports continued focus on domestic AI cloud commercialization, remote data center buildout, and compute infrastructure expansion.

Risks

• Cloud capex may come in below expectations, slowing growth in the data center and AI cloud supply chains.
• US peers still have a materially larger capex base, leaving uncertainty about the pace at which China can catch up.
• Morgan Stanley has shareholding, investment banking, market-making, or service relationships with some covered companies, which may create potential conflicts of interest.
• The report contains forward-looking estimates, so future performance depends on assumptions being met and past performance is not indicative of future results.

What to watch

• Whether China's cloud capex in 2026 approaches RMB 603 billion.
• Whether AI cloud demand and token usage can continue to translate into actual spending by cloud vendors.
• The pace of domestic data center capacity expansion and changes in utilization.
• The actual capex contribution after including Kingsoft Cloud in the forecast.
• Whether China cloud capex as a share of US peers continues to rise.