AI, data-center stocks slip as Democratic sweep clouds expansion plans

AI and Data Center Stocks Fall as Democrats Win US Midterms, Clouding Expansion

Market Reaction and Industry Outlook

By Niket Nishant

Nov 5 (Reuters) - AI and data center-linked stocks slipped in premarket trading on Thursday as Democrats' sweeping US midterm victory raised concerns about potential hurdles to the industry's rapid expansion.

Stock Performance Overview

Neocloud stocks, which have become a barometer of investor anxiety over heavy AI spending, fell, with CoreWeave and Nebius down about 4% each.

Political Impact on Data Center Industry

Investors worry Democratic control of Congress could bring tougher scrutiny of the data-center industry, potentially slowing development at a time when public opposition to new facilities is already mounting.

Risks to Capacity Expansion

Around 30% of expected US data center capacity additions in 2028 could be at risk from potential construction pauses, UBS analysts estimated, highlighting the threat to an industry whose growth depends on a rapid buildout of new facilities.

Investor Sentiment and AI Spending

The political uncertainty adds to pressure on the broader AI trade, as investors increasingly question whether the enormous capital spending required to build AI infrastructure will generate sufficient returns.

"The market's moving from the promise of AI to the price of AI," said Ted Parkhill, founder and CEO of Incline Investment Management.

"There's no question that AI is going to be transformative for the world in the long run. But that doesn't mean every AI-related stock is currently priced appropriately. There's going to be a lot of turmoil."

Sector-Specific Stock Movements

Data Center Operators and Suppliers

Data-center operators Applied Digital, Cipher Digital and IREN fell about 4% each.

The weakness extended to utilities and equipment suppliers exposed to the buildout. GE Vernova fell 1.2%, while Constellation Energy slipped 0.7%.

Hyperscalers and Tech Giants

Hyperscalers defied the selloff as investors wager that slower data-center construction could rein in Big Tech's AI spending and make existing facilities more valuable.

Amazon.com, Alphabet and Meta were up nearly 1% each, and Microsoft was flat.

Chipmakers and Related Stocks

Separately, Qualcomm plunged 9% after quarterly smartphone-chip sales missed Wall Street estimates. Chipmakers Nvidia, Intel and Broadcom slipped between 1.5% and 2.2%.

(Reporting by Niket Nishant in Bengaluru; Editing by Anil D'Silva)