Midterm Split Splits AI Stock Performance

Wall Street’s broad post-election rally obscured a sharp division within the artificial intelligence sector on Wednesday. The political shift triggered a reevaluation of data center construction costs, causing investors to pivot away from speculative upstarts and toward established cloud giants.

Democratic candidates won governorships in Texas and Ohio, two states that serve as primary hubs for infrastructure investment. Bernstein analysts estimate Texas accounts for roughly 25% of current data center construction. Voters also approved local measures limiting such projects in various communities, while Democrats took control of both chambers of Congress.

Major cloud companies saw their shares rise as investors interpreted the political outcome as a check on excessive capital expenditure. Amazon stock increased by 7%, Microsoft climbed more than 6%, and Alphabet gained nearly 4%. CNBC’s Jim Cramer identified these firms as incumbents with existing infrastructure and strong demand. He noted that the market views a moderation in future spending as a positive development for cash flow.

Smaller computing providers known as neoclouds faced steep declines. CoreWeave shares dropped almost 10%, Iren fell 11%, and Nebius slid about 6.5%. These losses compounded drawdowns from year-to-date highs. Investors expressed concern over the debt these firms rely on to fund expansion in a tighter financing environment.

Cramer compared the situation to challenges faced by natural gas pipelines during the Biden administration. He stated that neoclouds are the entities least likely to secure marginal capital in this new environment. This funding constraint could hinder their ability to continue aggressive expansion plans.

Suppliers of AI infrastructure equipment also saw their stock prices decline. Eaton shares fell 9%, erasing the gains from its strong earnings report on Tuesday. GE Vernova dropped 10% despite reporting robust third-quarter results and a growing backlog of gas turbines. Both companies entered the trading day significantly below their year-to-date peaks.

Semiconductor stocks came under pressure as well. Marvell declined 8% and Arm fell 5%. Micron and Intel dropped 5.5% and 3% respectively, while Nvidia lost 1%. Apple shares jumped 6%, as investors anticipated relief from AI-driven spikes in DRAM memory costs. Cramer recommended buying Qnity Electronics, suggesting that the data center trade has not been entirely eliminated by the election results.