Wall Street rallied Wednesday after Democrats scored major victories in the US midterm elections, but AI-related stocks moved in sharply different directions. Investors weighed whether support for restrictions on data center development could slow the sector’s rapid expansion.
Democrats who favor limits on data center projects won governorships in Texas and Ohio, two major destinations for investment. Texas accounts for about 25% of data center construction, according to Bernstein analysts. Voters also approved measures restricting projects in local communities, while Democrats took control of both chambers of Congress.
Several large technology companies that are spending heavily on data centers rose. Amazon gained 7%, Microsoft climbed more than 6%, and Alphabet advanced almost 4%. CNBC’s Jim Cramer described these established companies as “the incumbents,” noting their existing data center capacity and strong customer demand. Investors may be betting that spending will moderate, helping their cash flows recover without eliminating demand for AI computing.
Smaller computing providers, often called neoclouds, fell. CoreWeave dropped almost 10%, Iren lost 11%, and Nebius declined about 6.5%. These companies are more speculative investments and have weaker balance sheets than the established technology giants. Cramer said tighter financing could leave them with less access to capital, particularly as concerns grow about debt-funded data center construction.
Companies supplying infrastructure also came under pressure. Eaton fell 9% and GE Vernova declined 10%, despite recent signs of resilient demand and strong results. BMO Capital Markets analysts said investors were reassessing exposure to policy changes, while adding that existing backlogs and projects should still convert because of underlying demand growth.
Chip stocks were broadly weaker: Marvell fell 8%, Arm dropped 5%, Micron declined 5.5%, Intel lost 3%, and Nvidia slipped 1%. Qnity Electronics, a supplier of materials used in chip manufacturing, was slightly lower despite reporting quarterly results above expectations and raising its outlook. Cramer recommended buying the stock, indicating that he did not view the election results as ending the data center investment theme.
Apple moved in the opposite direction, rising 6%. The company has faced higher DRAM memory costs linked to AI demand and has raised prices on some products. Cramer said a slowdown in memory price increases could ease pressure on Apple’s margins.
Wednesday’s trading showed investors making divergent bets on the effects of the election. The data center buildout is expected to continue, but the pace, funding and distribution of investment could change.
Sources: CNBC Markets.