Americans are protesting data centers across the US.
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Shares of neocloud firms like CoreWeave are sinking as Democratic wins rattle data center outlooks.
The post-midterm drop follows a rough patch for neoclouds, which have been pressured by concerns about debt.
Yet, some believe the result could ultimately benefit the AI trade.
Neocloud stocks are getting slammed on Wednesday after sweeping Democratic wins in Tuesday’s midterm elections.
Companies like CoreWeave, Nebius, and Iren Limited dropped after the results, which have added additional pressure following a stretch of losses in October spurred by investors’ concerns about debt in the sector .
The fear now is that Democratic wins could slow the pace of the data center buildout . Neoclouds, which lease compute capacity to AI customers, are at the heart of the selling on Wednesday as investors see obstacles emerging for the AI trade.
Here were the big moves among neoclouds and big data center spenders on Wednesday.
CoreWeave : -9.2%
Nebius : -6%
Iren : -11%
SpaceX : -4%
Democrats won majorities in the Senate and the House of Representatives, and won the governor’s race in Texas, a key state for AI data centers development that’s expected to account for 30% of compute capacity that’s expected to come online through 2030.
According to UBS, about 30% of the new data centers expected in the next two years could be impacted by the blue wave election result. Meanwhile, more than three-quarters of voters opposed new data centers being built in their communities, an NBC News exit poll on Tuesday showed.
Dan Ives, the founder of research firm Yorkville Ives, who has remained uber-bullish on the AI trade in recent months, struck a more downbeat tone on Wednesday.
“For tech investors the big focus is will these mid-term elections slow the pace of the planned 800 to 1,000 datacenters across the US fueling the AI Revolution…the answer in our view is a clear YES,” Ives wrote in a note to clients. “There is no way to sugarcoat that Democrats taking control especially over the Senate will create some major hurdles for AI and tech legislation in the Beltway over the next 2 years.”
But elsewhere in the AI trade, bullish sentiment hasn’t been crushed, and investors shouldn’t panic too much about the AI trade grinding to a halt, said Hank Smith, the head of investment strategy at Haverford Trust, which oversees about $17 billion.
Smith said the data center buildout would likely slow a bit, which leaves some of the trade’s picks-and-shovels vulnerable, even though fundamentals remain strong.
However, a slower pace of spending may ultimately be a positive for hyperscalers and the trade as a whole, as investors will have more time to digest the moves, he said.
“The good news is that this will probably slow down the tremendous capital raise that’s been going on and that’s been concerning investors in the last six months,” Smith told Business Insider on Wednesday morning.
“It might be very well received by the markets,” he added.
In October, neocloud firms were punished as investors fretted over CoreWeave’s bonds, which topped a 15% yield and saw prices sink to levels usually associated with distressed credit. Investors have also dumped AI-linked stocks broadly over the last few weeks on fears about rising borrowing costs , sky-high valuations, and waning demand from businesses.
Shares of CoreWeave are down 46% in a month.
Read the original article on Business Insider
