Shares of major cloud technology companies rose on Wednesday despite Democratic victories in the US midterm elections, raising the prospect of tighter restrictions on artificial intelligence data centres.
Amazon stock AMZN climbed more than 7% to $271.49 in morning trading, leading gains among the major cloud providers.
Microsoft, Alphabet and Meta Platforms also traded higher, while smaller cloud infrastructure companies, including CoreWeave, moved lower.
Democrats won control of both chambers of Congress and secured key gubernatorial victories, including in Texas, Georgia and Ohio.
Opposition to the rapid expansion of AI data centres was a major campaign issue, raising concerns about potential construction restrictions.
However, analysts said tighter regulatory barriers could benefit established cloud providers by making it harder for smaller competitors to expand capacity.
Regulatory barriers could strengthen hyperscalers
Large technology companies, commonly known as hyperscalers, have invested heavily in building and operating data centres to support AI services.
Needham analyst Laura Martin said higher regulatory barriers could strengthen existing players while increasing the risks and required returns on investment for new entrants.
Amazon, Microsoft, Alphabet and Meta already operate extensive cloud infrastructure, giving them an advantage if new data-centre construction becomes more difficult.
A slowdown in industry-wide capital expenditure could also ease pressure on the established companies’ finances.
Their existing infrastructure would remain available to generate revenue, while lower spending requirements could improve returns on invested capital.
Martin noted that investors and politicians were increasingly aligned in wanting slower capital spending growth, although their motivations differed.
Baird Private Wealth Management strategist Michael Antonelli said in a WSJ report that hyperscalers “already have compute. They have the data centers. So if you’re pulling up the drawbridge, you’re giving them their moat.”
Existing data centres and computing capacity could become a competitive advantage if the expansion of new facilities slows.
AI spending concerns remain in focus
The potential slowdown comes as investors question whether the largest technology companies can sustain their spending on AI infrastructure.
Amazon, Meta, Microsoft and Alphabet shares came under pressure after reporting their September-quarter results late last month.
Their rising capital expenditure has also pushed free cash flow at Amazon, Meta and Alphabet into negative territory.
The companies have increasingly turned to a combination of debt and equity financing to support their infrastructure investments.
A slowdown in spending could therefore address some investor concerns about the financial risks associated with the AI race.
Lower capital expenditure could improve free cash flow and reduce the pressure to invest aggressively in additional capacity.
Yorkville Ives analyst Dan Ives described the election outcome as a potential positive for some technology investors if it encourages large companies to moderate their spending.
However, he also warned that Democratic control of Congress would create significant challenges for the broader AI and technology industry.
Smaller cloud providers face potential pressure
While established hyperscalers advanced, smaller cloud infrastructure providers faced a weaker market reaction.
Companies such as CoreWeave have expanded rapidly to compete with larger cloud providers by building data centres and offering computing capacity for AI workloads.
New restrictions on data-centre construction could make it more difficult for these businesses to expand, while established providers would retain access to their existing infrastructure.
The election results could also lead to negotiations between technology companies and lawmakers over future AI legislation.
Ives said the Trump administration could oppose major regulatory measures, but congressional pressure may still push technology executives towards compromises.
AI disclosure: AI tools assisted with research and drafting of this piece. An Invezz editor reviewed the facts, sources and wording before publication. Any opinions or analysis are Invezz’s, not those of an automated system.
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