Democrats' midterm sweep fuels $750 billion Big Tech rally

Amazon.com

Wed 16:44

By Aditya Soni and Darshan Kumar R
Nov 4 (Reuters) - Democrats' midterm election sweep sent shares in US tech giants soaring on Wednesday as investors bet that potential curbs on new data-center construction could cement their grip on scarce computing power while easing pressure on strained cash flows.
Shares of Amazon AMZN.O surged 7.4% to a three-month high while Meta Platforms META.O, Alphabet GOOGL.O and Microsoft MSFT.O gained between 2% and 6.3%, powering a rally on Wall Street after days of selling fueled by fears over the AI boom's soaring costs.
Apple AAPL.O, which has avoided Big Tech's massive AI spending but is feeling the sting of an AI-fueled 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.
The rally marks a sharp reversal for the battered cloud giants after their quarterly earnings showed how the AI infrastructure race was turning once cash-rich, debt-light companies into heavy spenders reliant on borrowing. Microsoft was the notable exception, with $18.6 billion in cash flow.
The gains followed landslide midterm victories for Democrats who oppose data centers, including in Texas, likely accelerating a backlash against the power-hungry, water-intensive and noisy facilities that are at the heart of the AI boom but increasingly unpopular with local communities.
"Conceptually, post-election, there may be a bit of a slowdown or some bumps in the road for future data-center build-out," said Art Hogan, chief market strategist at B. Riley Wealth.
"The hyperscalers (large tech companies) already have data centers, so those assets are more valuable now because there's not going to be an overbuild of data centers. Also, if there's a slower pace of data-center build-out, then there's going to be a slower pace of CapEx spending. That certainly would impact the hyperscalers."
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. That far outstrips smaller AI cloud rivals such as CoreWeave CRWV.O and Nebius NBIS.O.
Shares of smaller players including Applied Digital APLD.O and Iren IREN.O plunged between 6% and 13% on fears that curbs on data-center construction could derail their debt-fueled expansion plans. The companies have been spending several times their revenue to meet a swelling backlog of orders.
"The biggest worry of the night for tech investors and the AI trade was around the state of Texas, where ~25%-30% of data-center gigawatts and capacity will come from," said Dan Ives, senior managing director and tech analyst at Yorkville Ives. 
"Now it will happen at a more measured pace, which is likely a good thing in the eyes of many investors." 


 (Reporting by Aditya Soni in Bengaluru; Editing by Sriraj Kalluvila)
 ((Aditya.Soni@thomsonreuters.com;))