On Wednesday, major US technology stocks led gains across the market as investors wagered that a Democrat-controlled Congress would rein in the massive artificial intelligence spending that has been consuming free cash flow.
Amazon (AMZN.US) climbed as much as 8.3% during intraday trading, while Microsoft (MSFT.US) rose 7%, Alphabet (GOOGL.US) gained 5.9%, and Meta (META.US) advanced 3.6%. Combined with Apple (AAPL.US), which had previously avoided AI-heavy capital expenditures and surged over 6%, these five tech giants were expected to collectively add nearly $1 trillion in market capitalization.
Democrats secured majorities in both the House and Senate in Tuesday's elections, flipping traditionally Republican strongholds including South Carolina, Texas, and Kansas, while also winning local races and gaining control of multiple state legislatures and governorships. A central pillar of the party's candidates' campaigns was slowing AI development, particularly through scrutiny of the large-scale data center construction required to run this emerging technology.
"The market is behaving as if this represents the end of the AI buildout cycle," said Robert Pavlik, senior portfolio manager at Dakota Wealth Management. "If this means hyperscalers will no longer spend enormous sums building computing capacity, that means they could return to generating positive free cash flow."
Keith Parker, head of global macro equity strategy and US equity strategy research at UBS, wrote in a note to clients on Wednesday that exit polls showed voters strongly opposed to new data centers being built in their communities. "The 'blue wave' will have implications for stocks, with the biggest impact likely coming from states tightening regulations on data centers in the near term," he wrote.
Shares of Amazon, Microsoft, Alphabet, and Meta had been under sustained pressure recently. Investors grew increasingly concerned that these companies were pouring hundreds of billions of dollars into computing infrastructure without generating sufficient returns. Meanwhile, free cash flow at Amazon, Alphabet, and Meta had all turned negative, meaning their capital expenditures exceeded operating cash flow. As a result, these companies were forced to tap debt and equity markets to finance their spending.
As of Tuesday, a Bloomberg index tracking the "Magnificent Seven" tech stocks had fallen 5.9% since Meta kicked off the so-called hyperscaler earnings season on October 21, leaving the group with just a 4.1% gain for the year and trailing the S&P 500 and Nasdaq 100. On Wednesday, the index rose as much as 3.6%, even as chipmaker Nvidia (NVDA.US) and Tesla (TSLA.US) — the biggest beneficiaries of the data center construction boom — declined.
Pavlik noted that while Wednesday's trading was highly speculative, it underscored how important free cash flow has become to investors. "Hyperscalers have been caught in a bind: spending money gets punished, but cutting back also raises questions," he said. "In a sense, the election is a gift to hyperscalers — the brakes are being applied, not by companies, but by the government."
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