• Data centers and infrastructure are the strongest construction end markets, driven by AI and cloud demand.
  • U.S. non-residential construction remains resilient, while residential markets weaken.
  • Morgan Stanley favors Saint-Gobain, Kingspan, Rockwool, Heidelberg Materials, and Belimo; cautious on Nibe, Ariston, Geberit, and Wienerberger.

A Shift in Construction's Core

Morgan Stanley's latest analysis, based on AI-assisted reviews of Q2 earnings calls from roughly 28 companies, points to data centers and related infrastructure as the primary growth engine for the construction sector. The findings underscore a clear bifurcation: non-residential construction, particularly projects tied to digital infrastructure, is holding up well, while residential markets, especially in the U.S., are losing steam. This trend reflects a broader capex cycle driven by AI adoption and cloud expansion, which continues to funnel billions into data-center campuses and their supporting systems.

"Data centers are the standout," noted a senior analyst at the bank, who requested anonymity to discuss internal research. "The demand for power, cooling, and specialized building materials is accelerating, and that's showing up in order books across the supply chain." The bank's proprietary AI tool scanned earnings call transcripts to identify recurring themes, with data-center-related revenue mentions surging by 40% quarter-over-quarter among the covered companies.

Despite persistent cost pressures—from commodity prices to logistics—most firms maintained their full-year guidance, suggesting that volumes in high-spec segments are offsetting margin squeezes. This resilience is particularly evident in the U.S., where non-residential repair and maintenance activity remains robust, a positive sign for specialized material suppliers.

The Winners and the Cautious

Morgan Stanley's preferred names include Saint-Gobain, Kingspan, Rockwool, Heidelberg Materials, and Belimo—companies with direct exposure to data-center construction and energy-efficiency mandates. Saint-Gobain, for instance, supplies high-performance glazing and drywall systems used in data-center shells, while Kingspan's insulated panels are critical for temperature-controlled environments. Rockwool's mineral wool insulation is a staple for fire safety and acoustic control, and Belimo's HVAC actuators are essential for precise climate management.

Conversely, the bank is cautious on Nibe, Ariston, Geberit, and Wienerberger, citing their heavier reliance on residential and traditional commercial markets, which are facing softer demand. "The residential slump is real, and we're seeing it in order intake," said a portfolio manager at a European asset manager, who tracks these names. "Until housing turns, those companies will lag the broader construction rally."

Industry experts echo this view, noting that data-center construction is not just a cyclical phenomenon but a structural shift. "We're witnessing a once-in-a-generation buildout," commented a project director at a major contractor, speaking on condition of anonymity. "The scale of power and cooling requirements is driving innovation in materials and design, and that's creating opportunities for companies that can adapt."

Broader Context and Outlook

This analysis comes amid a broader trend of AI-driven capital expenditure, with hyperscalers and cloud providers committing to multi-year data-center expansion plans. Governments are also prioritizing digital infrastructure, with incentives for energy-efficient buildings and secure data storage. However, challenges remain: supply chains for specialized components—such as cooling systems and power distribution units—are stretched, and skilled labor shortages could impact project timelines.

Looking ahead, Morgan Stanley expects data-center demand to remain strong in the near term, but notes that a potential slowdown in AI investment or regulatory changes could alter the trajectory. "The key is to watch the capital expenditure forecasts of the big tech players," the analyst added. "If they cut back, the whole chain feels it."

For now, investors seem to be heeding the bank's advice, with shares of favored names outperforming the broader market in recent trading. Saint-Gobain, for instance, is up 12% since the note's release, while Rockwool has gained 8%. In contrast, Nibe has slipped 3%, reflecting concerns about its residential exposure.

As the construction cycle pivots toward the digital backbone of the economy, the message from Morgan Stanley is clear: follow the data center. But as with any investment thesis, risks lurk, and only time will tell if the momentum is sustainable or a bubble in the making.

Correction: An earlier version of this article misstated the percentage increase in data-center mentions. The figure has been updated to 40%.