Quartz
Wall Street is celebrating a surprising possibility: less AI spending could mean bigger profits for Big Tech.
Big tech stocks soar as investors bet Democrats could slow AI spending
Author: Cris Tolomia
Amazon stock climbed as much as 8.3% on Wednesday, with investors appearing to wager that a Democratic-controlled Congress will rein in AI spending that is draining free cash flow.
Microsoft stock gained as much as 7%, Alphabet stock rose as much as 5.9% and Meta Platforms stock advanced as much as 3.6%. Apple stock rose more than 6%. Apple has steered clear of big outlays on AI,. Together, the five companies are on pace to gain close to $1 trillion in market capitalization on Wednesday.
Nvidia stock and Tesla stock declined. Nvidia has profited more than any other company from the data center buildout.
Democrats won majorities in the House and the Senate in Tuesday’s midterm elections. Their candidates campaigned on curbing AI development, especially the large-scale building of data centers that power the technology.
“The market is acting like this represents the end of the AI buildout,” Robert Pavlik, a senior portfolio manager at Dakota Wealth Management, said, according to Bloomberg. He added that “the brakes are being applied to their spending, not by the companies, but by the government.”
Exit polls found that voters are firmly against having new data centers near where they live, Keith Parker, head of global macro equity strategy and U.S. equity strategy research at UBS, wrote in a Wednesday client note, according to Bloomberg.
Shares of Amazon, Microsoft, Alphabet and Meta had been sliding because investors doubted that the companies’ enormous computing outlays, running to hundreds of billions, would pay off adequately. Free cash flow has turned negative at Amazon, Alphabet and Meta, and the companies are turning to borrowing and share sales to finance the outlays.
A Bloomberg gauge of the Magnificent Seven group of tech companies had dropped 5.9% since Oct. 21, when Meta opened the hyperscalers’ earnings season. On Wednesday the group climbed by as much as 3.6%, putting it on track for its strongest session since Sept. 21.
Texas is a focus for technology investors. Gina Hinojosa, who defeated Republican Gov. Greg Abbott, has called for an end to data center development in the state. Wells Fargo estimates Texas holds 27% of planned U.S. data center gigawatts. Republicans hold the majority in the Texas Legislature, which limits how much she can change state policy.
Chip stocks slipped, and shares of AI cloud providers CoreWeave and IREN each fell 4%. Broader U.S. stocks rose after the opening bell, with the Dow Jones Industrial Average up 2%, the S&P 500 up 1.25% and the Nasdaq Composite up 1.3%.
Credits: Project Syndicate