AI data center stocks fall and renewable energy rises after Democrats win US midterm elections

By Purvi Agarwal and Johann M Cherian

Nov 4 (Reuters) – Data center stocks fell in premarket trading on Wednesday, while clean energy stocks rebounded after Democrats took control of Congress, prompting investors to reposition for tougher scrutiny of the AI ​​boom and a shift in policy priorities.

The Democrats’ victory, which included victories in traditional Republican strongholds and major data center hubs in Texas and Georgia, will usher in divided government in Washington and raises the prospect of greater congressional oversight of industries that have benefited from Republican control.

The market reaction reverberated across AI stocks, renewable energy, healthcare companies, defense contractors and prison operators.

DATA CENTER STOCKS

Data center operators lost ground, with Core Scientific down 3.5% and Iren down 3.6%. Applied Digital and CoreWeave fell 2.4% and 3.8%, respectively.

The data center boom has sparked a public backlash this year, raising fears that tighter Democratic control could slow investment, just as investors are wary of soaring AI spending and uncertain returns.

Although analysts doubt that legislation could significantly block data center construction, a Democratic-led Congress raises the prospects for more hearings and investigations related to AI development.

“AI is a huge engine powering the U.S. economy, so any restrictions on its future development could threaten to stunt growth,” said Kit Rees, investment strategist at Quilter.

CLEAN ENERGY

A Democratic victory could bolster expectations for continued federal support for clean energy while speeding up approval of energy and infrastructure projects.

Democrats plan to examine the Trump administration’s efforts to roll back emissions rules and could use the Congressional Review Act to roll back regulations that make it easier to sell gas-powered trucks and SUVs.

Shares of solar power maker First Solar gained 7%, residential solar installer Sunrun gained 6.1% and inverter maker Enphase Energy gained 3.6%. Clean energy developer NextEra Energy rose 2.3%.

“As oil and gas prices rise, the greater the incentive, the greater the economic incentive to deploy clean energy,” said Paul Jackson, EMEA global market strategist at Invesco.

European companies Vestas and Orsted rose 4.3% and 6.4% respectively, while Portugal’s EDP Renewables rose 2.3%.

COMPANIES LEAD BY ELON MUSK

Shares of SpaceX, Elon Musk’s rocket and space technology company, fell 5.2%, while electric vehicle maker Tesla fell 4.9%.

“This puts a potential merger between SpaceX and Tesla into doubt. Even if Congress can’t prevent a merger, it could slow it down with greater scrutiny,” said Kathleen Brooks, research director at XTB.

“Musk had hundreds of millions invested in the Republican Party before this election…we could see Musk-related stocks struggle now that his political enemies have regained control of Congress.”

Trump Media & Technology Group, majority owned by Trump, fell 7.7%.

DEFENSE ACTIONS

Defense contractors such as Northrop Grumman fell 2.7%, while RTX, Lockheed Martin and L3Harris lost more than 2% each. The sector had been buoyed by hopes that Trump’s requested $1.5 trillion budget would not face headwinds in a Republican-dominated Congress.

However, in a Democratic-led Congress, analysts predict funding could fall short of expectations.

HEALTH INSURERS AND HOSPITAL OPERATORS

Shares of hospital operators such as HCA Healthcare and Universal Health Services gained 5.4% and 3.4%, respectively.

Insurers such as Centene ​were up 4.7% and Elevance was slightly higher.

Democrats have pushed for universal health care policies that could mean more government spending allocated to the sector.

Anis Bensaidani, an economist at BNP Paribas, said Democrats may not have enough numbers to pass legislation restoring significant parts of the Affordable Care Act, but they could still extract concessions in negotiations over defense spending and government funding.

PRISON OPERATORS

Prison operators such as GEO Group and CoreCivic fell 6.2% and 5.7%, respectively. Both values ​​have risen sharply since Trump won the presidency two years ago, as his fight against illegal immigration has increased the need for detention centers.

(Reporting by Purvi Agarwal ​and Johann M Cherian in Bengaluru; editing by Shreya Biswas and Anil D’Silva)