A Democratic sweep of both chambers of Congress in the midterm elections left Wall Street divided in Wednesday’s trade. While AI chipmakers, memory companies and data centre operators fell, hyperscalers surged sharply.
Shares of Amazon surged 8% to a three-month high, while Apple and Microsoft advanced 6% each. Alphabet gained 5.7%, while Meta Platforms climbed 3.5%, powering a rally on Wall Street after days of selling fuelled by concerns over the soaring costs of the AI boom.
Apple, which has avoided Big Tech’s massive AI spending but is feeling the impact of an AI-fuelled surge in memory chip prices, jumped nearly 7% to a record high.
If the gains hold, the five companies are on course to add more than $750 billion in combined market value, according to Bloomberg.
A Democratic-led Congress could push for tighter regulation of AI development and data centre construction. Some investors see this as a sign that hyperscalers may moderate their spending.
On the other hand, SanDisk shares slumped 10%, while peer Seagate Technology Holdings plunged 8.2% at its intraday low. Nvidia, the chipmaker that quickly became the poster child of the AI stock frenzy, slipped 2.5%.
CoreWeave, a company that rents out access to AI chips to customers over the cloud, fell 11%. Advanced Micro Devices, another chip giant, was down 1.5%, even after reporting a much stronger profit for the latest quarter than analysts had expected.
Hyperscalers rebound as investors reassess AI spending
For hyperscalers, the rally marks a sharp reversal after a difficult period for cloud giants. Their quarterly earnings reports highlighted how the race to build AI infrastructure was turning once cash-rich, debt-light companies into heavy spenders increasingly reliant on borrowing. Microsoft was a notable exception, reporting $18.6 billion in cash flow.
Democrats have voiced opposition to data centre expansion, including in Texas. The results could accelerate a backlash against the power-hungry, water-intensive and noisy facilities that are central to the AI boom but have become increasingly unpopular with local communities.
The tech giants have been building capacity at a blistering pace, with plans to spend more than $740 billion this year, up from roughly $400 billion last year, as per Bloomberg.
Concerns mount over returns on massive AI investments
The artificial intelligence industry has remained volatile for months amid criticism that valuations have risen too far and that the sector could be in a bubble. Concerns are growing that the hundreds of billions of dollars Big Tech companies are pouring into AI data centres may not generate enough productivity gains and profits to justify the investments.
The latest earnings reports from Alphabet and other Big Tech companies also highlighted how AI-related investments may be weighing on their existing businesses. Google’s parent company reported a larger cash outflow, as measured by free cash flow, during the latest quarter, alongside slower-than-expected growth in its search business.
Democratic victories raise prospect of tighter AI oversight
US President Donald Trump has been a strong supporter of the AI industry, and Democratic control of Capitol Hill could bring greater regulation or restrictions for the sector. Concerns about AI have, however, been growing across political parties.
State-level policy changes could have a more immediate impact on the industry. Democrats won gubernatorial races in Ohio, Georgia and Texas, three states with significant planned data centre investments. Their incoming governors have pledged greater oversight of the sector.
In Ohio, Democratic Senator-elect Sherrod Brown made opposition to data centre expansion a central part of his campaign.
(With inputs from Bloomberg)
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