Wall Street Sees Risks to AI Boom After the Democratic Sweep

While stocks rallied as the Democratic sweep of Congress promises to exert a significant restraint on President Donald Trump, one key corner of the market was left out.

Some of the companies building the data centers that are powering the AI boom — which Trump has embraced — pulled back after candidates in Texas and elsewhere tapped into worries that its breakneck growth is pushing up power bills and threatening to automate high-paying jobs.

Shares of data-center companies CoreWeave Inc., Iren Ltd and Nebius Group NV all fell on Wednesday, as did power equipment companies closely linked to the AI trade like GE Vernova Inc. and Vertiv Holdings Co. Chipmakers like Nvidia Corp. and Marvell Technology Inc. also dropped even as the Nasdaq 100 Index — a major tech benchmark — climbed over 1%.

Politics aside, investors were already worried about the sustainability of all the debt-fueled AI investment spending and the reaction on Wall Street was nuanced. Most analysts doubted it would derail the development of the technology over the longer term but may tap the brakes on the pace of its growth.

Here’s what investors and strategists across Wall Street are saying:

Mabrouk Chetouane, Head of Global Market Strategy at Natixis Investment Managers

“The Democrats will not in my opinion challenge what has already been implemented to win this race when it comes to AI. Because there is now a big competition between China and the US when it comes to technology.”

Lori Calvasina, Head of US Equity Strategy at RBC Capital Markets

“Some of the questions on data centers suggested concerns about regulation should be faded, but others suggested they should remain in the spotlight. Regardless of what does or does not happen with Congress on this issue, risk does remain from the governors’ results as AI/data centers was a top issue in the close campaigns for those seats.”“We still struggle to support the idea that the election will be a major clearing event for markets, however, given the absence of the usual turbulence in the US equity market around the election so far.”

Kieth Lerner, Chief Investment Officer and Chief Market Strategist at Truist Advisory Services

“This does add uncertainty about the path forward and maybe the pace forward, but ultimately we still think that the data center build-out will continue. Maybe the pace changes on the margin, but we ultimately think there’s huge demand for compute and that there may be some changes in how the data centers have to approach this, meaning maybe some of the tax incentives change, maybe some of the counties that really voted against this, maybe they have to move, go somewhere else. They might have to find other alternatives. But we think ultimately — much like fracking — we still expect that we see a buildout. It just may be done with some different concessions, with some guardrails, more guardrails than we had before.”

Brad Long, Chief Investment Officer at Wealthspire

“Republicans or Democrats sitting in any state around the country, not just Texas, look at a state that historically has been Republican friendly with a largely effective governor, seeing them overthrown on this basis that data centers are an unpopular position. I think politicians, if anything, love to get reelected before they think about policy. And so more and more, whether it be Republican or Democrat, are likely to jump on that bandwagon to air quotes protect their state from data centers. Obviously that is a popular narrative.”“It’s certainly not going to change the fact that data centers will be built out and there’s a lot of demand and there’s a lot of backlog. The question will be the regulation and the time and the throughput there. What markets are going to have to digest is, it’s not will data centers be built, but where and how long will it take and how much red tape will be there? Which obviously pushes further out not just all the capex spending, but the throughput on the benefit from AI.”

Matt Maley, Chief Market Strategist at Miller Tabak + Co.

“The headwinds are getting a little bit bigger for the AI movement. That’s going to give us some tough sledding. So it may be a lot harder for the market to see the usual year-end rally in the midterm election years.”“The ‘not in my backyard’ with data centers is gonna be a 2028 issue immediately, and I think that the 2028 campaign starts today. ... It is all but impossible for the Republicans to win the presidency or win the Electoral College without winning Texas.”

Charlie McElligott, Cross Asset Strategist at Nomura Holdings Inc.

“Narrative-wise, I think the initial ‘Glass Half-Full’ post ‘Blue Tsunami’ midterm Elections -trade is based upon the following rationalizations—some probably obvious, some more nuanced: A belief that the election results will lead to a forced moderation of US datacenter buildout, which then calms concerns around the Hyperscaler Capex race-to-infinity ‘prisoner’s dilemma’…Which from a markets-perspective reduces some of financing concerns around magnitude of credit and equities issuance, slows the “FCF burn” -trajectory fears.”

JP Powers, Chief Investment Officer at RWA Wealth Partners

“There’s definitely some fears about what this might mean for the AI build-out, especially on data centers, and those names have already been under pressure because of the expected Democratic victory. But I think it’s probably a little bit overblown. It’s going to put more onus on the states, but I don’t think that that will impact existing projects all that much. But it could result in higher cost of production if these companies have to provide maybe more local assistance or navigate more regulation across the board just to get some of these projects through. But we still need these data centers.”

Steve Sosnick, Chief Strategist at Interactive Brokers

“You could read this as a vote against data centers, but at some level there’s a lot of momentum toward building them, there’s a lot of jobs at stake. The boulder’s already rolling down the hill to some extent, so the election of a few governors and a change in Congress is not going to completely stop the momentum.”“The market’s been expressing very valid fears that the money is just being spent too aggressively and that the borrowing is so extreme. And so maybe this slows it down to something that’s a bit more manageable, which isn’t great for the suppliers, but may actually impose a little financial discipline on the industry that markets are okay with.”

Peter Tchir, Head of Macro Strategy at Academy Securities

“This is a wake up call. They have to really get out and make their case why communities should want data centers. I think in the end they will be successful, but it probably slows some of these projects down.”

Andrew Tyler, Head of Global Market Intelligence at JPMorgan Chase & Co.

“Gov-elect Hinojosa favors an immediate moratorium on data center builds in Texas until new laws can be passed to establish guardrails. One interpretation is that existing builds / permits would be free to continue and all new construction would be halted and thus would move to other states. Another interpretation is that the datacenter build is slowing and likely reducing capex; this theme had been building into the election.”“We would not abandon the Tech trade and would play for a tactical rebound, but we may see the market become increasingly selective of Tech / AI winners and losers.”