U.S. midterm election results are creating a bifurcated market for artificial intelligence infrastructure, potentially rewarding established tech giants while squeezing debt-reliant providers. Democratic victories in key gubernatorial races have increased the likelihood of stricter scrutiny for data center projects, raising investor concerns regarding the speed and financing of new capacity. In Texas, Democratic governor-elect Gina Hinojosa has proposed a statewide moratorium on new data center permits, though projects already under construction would reportedly be exempt.
Market reactions to the election results saw Microsoft and Amazon surge more than 6%, while AI infrastructure provider CoreWeave fell approximately 10%. Chipmakers Micron and Nvidia also declined, falling 7% and 3.17% respectively. This volatility follows a period in October where Nvidia-backed neoclouds CoreWeave, Nebius, and Iren fell at least 30% as tightening credit markets raised questions about the financing of AI infrastructure projects.
James Sullivan, managing director and co-head of global fundamental research at JPMorgan, told CNBC's "Squawk Box Asia" that widening borrowing spreads are driving this split. Sullivan noted that neocloud companies face substantially higher costs for additional capital compared to hyperscalers, which benefit from more diversified revenue streams. "The fact that you're seeing this bifurcation in equity performance is largely driven by the view that existing capacity is significantly more valuable now because of incremental supply constraints," Sullivan said.
Regulatory uncertainty is expected to impact the construction pipeline unevenly. While much of the capacity slated for 2027 is already under construction, investment bank Nomura warned in a note Wednesday that projects planned for 2028 face greater exposure to permitting delays and regulatory uncertainty. BMI warned in a post-midterm analysis reported by The Business Times that a sharp slowdown in construction and investment could lead to a greater-than-expected decline in overall investment.
Financial strength remains a primary differentiator in the sector. JPMorgan Asset Management stated in an October 20 research note that hyperscalers possess broader cloud businesses and more internally generated cash flow, allowing them to better absorb delays. The asset manager added that these financially stronger companies could secure cheaper capacity or acquire assets if weaker operators are forced to scale back due to exposure to borrowing costs, energy prices, and refinancing conditions.
