Wall Street Splits the AI Trade in Two

NEW YORK, Nov. 4 — TheThe first trading session after Democrats won both houses of Congress, as the Associated Press reported, split the trade in artificial intelligence in two: the biggest cloud companies rallied, while many of the companies that supply and power data centers, or rent them out on borrowed money, fell. Microsoft rose 6.68 percent on Wednesday, Amazon 6.12 percent and Alphabet 3.18 percent.MSFTNasdaq545.18▲14.57+2.7%Microsoft · Monday’s session Vistra, the power producer, lost 13.83 percent; Vertiv, which makes power and cooling equipment for data centers, 12.89 percent; and CoreWeave, an AI cloud company, 9.90 percent.

The broad market rallied. The Dow Jones industrial average rose 1,569.40 points, or 3.03 percent, to 53,356.12, its best day since April 2025, NBC News reported, and the S&P 500 gained 1.58 percent, to 7,688.62.Oil and BondsOil fell, too: West Texas Intermediate lost 8.3 percent, closing at $88.12 a barrel, CNBC reported. The 10-year Treasury yield ended Wednesday at 4.90 percent, from 4.95 percent, by the Treasury’s count. George Saravelos of Deutsche Bank wrote that a large Democratic majority, and President Trump’s statement that he would work with the opposition, should check extreme policy and lower risk premia, NBC reported. While the Dow rose 3.03 percent, the PHLX Semiconductor index fell 3.13 percent, and Nvidia 3.17 percent, to $200.13.

The wager is on scarcity: if new data centers come slower, the capacity already built is worth more, and the companies that must borrow to build, or that sell the power and equipment for new sites, have less ahead of them. Amazon, Microsoft and Alphabet rose “because investors believe that if major data center construction slows, those cloud providers are best positioned with enough capacity in place already,” NBC News reported. Apple rose 5.31 percent with them, and Meta 1.44 percent.

Goldman Sachs economists wrote that Democratic wins at the state and local level were likely to lead to short-term moratoriums on data centers, “potentially affecting about 45% of planned US data center capacity expansion,” NBC News reported. Strategists at Morgan Stanley expected “incrementally negative AI sentiment on greater expectations for data center restrictions,” NBC reported.

Goldman added a federal caveat: there, the outcome is “less likely to change the outlook for data center and AI regulation, which would still need bipartisan support.” The states are where it bites, and Texas, NBC wrote, has been a major focus for AI investors, possibly more than any other state.Why TexasTexas “is the one state with enough scale” where a slowdown could make a difference, Tobin Marcus, Wolfe Research’s head of U.S. policy and politics, wrote in a recent note, NBC News reported. Texas already has a freeze: Gov. Greg Abbott has paused environmental permitting and grid connections for data centers during an audit, the Texas Tribune reported. Gina Hinojosa, the Democrat who beat him, the AP reported, has proposed a statewide moratorium on new data-center permits, though projects already under construction would reportedly be exempt, CNBC reported. She takes office Jan. 19, the Texas Tribune reported.

The Cost of Money

James Sullivan, a managing director and co-head of global fundamental research at JPMorgan, told CNBC’s “Squawk Box Asia” on Thursday that differences in borrowing costs explain much of the split. Borrowing spreads have widened significantly for the neocloud companies, he said, as CNBC reported, leaving their cost of new capital substantially higher than that of the hyperscalers, whose customers and revenue are more diversified.NeocloudsNewer AI cloud companies, such as CoreWeave and Nebius, that lean on borrowed money; the hyperscalers have broader cloud businesses and more cash of their own, JPMorgan Asset Management wrote in an Oct. 20 note, as CNBC reported. Shares of CoreWeave, Nebius and Iren fell at least 30 percent in October as credit tightened, CNBC reported. “The fact that you’re seeing this bifurcation in equity performance is largely driven by the view that existing capacity is significantly more valuable now because of incremental supply constraints,” he said.

The fact that you’re seeing this bifurcation in equity performance is largely driven by the view that existing capacity is significantly more valuable now because of incremental supply constraints.

Nomura, the Japanese investment bank, drew the line by year. Much of the capacity due to come online in 2027 is already under construction, it said in a note on Wednesday, as CNBC reported, so projects planned for 2028 face more exposure to permitting delays, and tighter rules could become a bigger headwind to AI investment from then.

The list of fallers was long. GE Vernova fell 9.30 percent, Talen Energy 8.54 percent, Micron 7.00 percent, Constellation Energy 6.71 percent and Nebius 6.67 percent. Broadcom lost 2.00 percent and Oracle 1.95 percent.

Asia’s Turn

On Thursday the selling moved to Asia: South Korea’s Kospi fell 5.28 percent, and in Tokyo Advantest, which makes chip-testing equipment, fell 14.71 percent and Kioxia, the flash-memory maker, 13.14 percent. SK Hynix and Samsung Electronics, the memory makers, each fell more than 7 percent, the Associated Press reported. Tokyo Electron, which makes chipmaking equipment, fell 9.42 percent.

The night before, CNBC had expected Asia to track Wall Street’s rally.What Asia ExpectedFutures on the Nikkei 225 were at 63,160 in Chicago before Thursday’s session, against the index’s previous close of 62,188.63, CNBC reported. It closed Thursday at 61,077.90. Where AI weighed less, markets did rise: “Asian markets less heavily exposed to the AI industry mostly climbed Thursday,” the AP reported. Hong Kong’s Hang Seng rose 3.67 percent and Japan’s broader Topix 1.16 percent. TSMC slipped 0.88 percent in Taipei, though the Taiex fell 3.20 percent.

By morning in New York the builders’ stocks were falling again. In trading before the open, as of 7:52 a.m., Micron was down 5.11 percent, AMD 4.64 percent, CoreWeave 4.21 percent, Vertiv 4.11 percent and Nvidia 1.81 percent, while Amazon was up 1.72 percent. Qualcomm, after its own results, was down 9.93 percent. At 7:42 a.m., Nasdaq-100 futures were down 0.88 percent and Dow futures up 0.48 percent.

Not everyone reads Wednesday as a verdict. Jordan Watson, a portfolio manager at Tandem Investment Advisors, said the rally and the rotation away from AI names could be temporary, CNBC reported. “I wouldn’t view [Wednesday’s equity trading] as an all-clear signal, but rather a call for some sanity around the amount of capital being poured into the AI infrastructure build-out and whether those investments will generate the returns investors expect,” he said. Evercore’s Sarah Bianchi, who expects new pauses, wrote that “the impact of any pause or moratorium will hinge on the details, such as any grandfathering, and whether projects facing prolonged disruption can relocate to other states,” NBC reported.

So far the market is paying for capacity in hand, and charging those who must borrow to add it and those who sell them power and equipment. The first tests come soon: CoreWeave reports its third quarter on Tuesday, Nov. 10, Nvidia on Nov. 17, and Ms. Hinojosa takes office in Texas on Jan. 19.