Updated version 2 - Artificial intelligence and data center stocks decline as the Democratic Party's sweeping victory casts a shadow over expansion plans

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Niket Nishant

Reuters, November 5 - On Thursday, stocks related to artificial intelligence and data centers fell as the Democratic Party achieved a sweeping victory in the U.S. midterm elections (link), sparking concerns in the market that the rapid expansion of the sector may face obstacles.

The “new cloud” category of stocks, a bellwether for investor concerns over massive AI spending, dropped, with CoreWeave CRWV.O and Nebius NBIS.O falling about 3% and 6% respectively.

Investors worry that Democratic control of Congress could lead to increased scrutiny of the data center industry, potentially slowing the sector's growth at a time when public opposition to new facilities has already been mounting.

UBS analysts estimate that about 30% of the projected new U.S. data center capacity by 2028 could be at risk due to potential construction halts, highlighting the threats facing the sector—which relies on the rapid build-out of new facilities for growth.

Political uncertainty has intensified the pressure on the entire AI sector, as investors increasingly question whether the massive capital outlays required to build AI infrastructure will generate adequate returns.

“The market is shifting its focus from the potential of AI to the cost of AI,” said Ted Parkhill, founder and CEO of Incline Investment Management.

“There is no doubt that, in the long run, artificial intelligence will transform the world. But that does not mean that the valuations of every AI-related stock at present are reasonable. The market is poised for intense volatility ahead.”

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Data center operators Applied Digital (APLD.O), Cipher Digital (CIFR.O), and IREN (IREN.O) all saw their share prices fall about 5%.

The decline also affected utilities and equipment suppliers impacted by data center construction. GE Vernova (GEV.N ) dropped 1.5%, while Constellation Energy ( CEG.O) fell 1% .

Some mega-cap tech companies bucked the trend, as investors bet that a slowdown in data center construction could rein in AI spending by tech giants—and boost the value of their existing facilities.

Amazon.com AMZN.O and Google parent Alphabet GOOGL.O rose by 1.9% and 1.6% respectively.

In addition, Qualcomm (QCOM.O) shares plunged 9% as its quarterly (link) smartphone chip sales missed Wall Street expectations. Chipmakers Nvidia (NVDA.O), Intel (INTC.O), and Broadcom (AVGO.O) saw share price declines ranging from 3.2% to 4.9% .

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