The Blue Wave Crashes on AI

November 9, 2026

• Elections resulted in a historical shift in party control of congress and state governments.
• Winning campaign platforms and ballot measures are incrementally negative for AI.
• Semiconductor and other AI-linked stocks are down significantly since the election.
• The election may hurt near-term infrastructure investment momentum, but could result in a more
  healthy, elongated cycle.
• Markets are likely to remain choppy for a spell, but risk has been reduced and a more constructive
  outlook could emerge once the dust settles and post-election tendencies take hold.

Market Update

Midterm election results are in and Democrats achieved one of the largest swings in congressional and state leadership over recent decades. While some results remain outstanding, it appears Democrats are projected to win a net 44 House seats, 7-9 Senate seats and 4-6 state Governor seats. It is typical for a sitting president’s party to lose Congressional seats in a midterm election, but these results stand out as more lopsided than most. The loss of representation at the Federal and State level is in the realm of the more historic swings in party control out of midterm elections over the last 50 years, with 1994 and 2010 the most comparable. The House results are particularly noteworthy given the significant re-districting that has taken place over recent decades, making it harder to unseat incumbent parties in many districts. Though the President continues to have meaningful executive authority, the unified strength of the House, Senate and State leadership will be a significant check on Executive power.

Lopsided elections have consequences. For the equity markets, the most obvious observation is that data center construction is unpopular. Winning candidates and successful ballot measures suggest there will be additional scrutiny applied to proposed data center projects, which could slow investment and construction. Texas, which represents nearly 30% of the data center construction pipeline and has a historically business-friendly investment environment, appears to be the largest incremental headwind to development. Governor-elect Gina Hinojosa campaigned on a platform for an immediate new data center moratorium until the legislature passes protections, stricter rules for water and power use, and ends tax breaks. While sitting Governor, Greg Abbot, had recently instituted some checks on data center development to keep pace in the campaign, the election crystallizes this as the new reality.

In the trading day following the election, AI linked stocks fell, reflecting the change of operating conditions. The average stock rose, however, with the S&P 500, S&P Equal Weight and Nasdaq all rising. This reaction appeared too simple. AI infrastructure investment is the largest driving force behind this economic expansion. If construction plans are going to be hindered, some impact to corporate earnings, employment and GDP growth should be expected. This may come with a lag, however, as current construction will likely move toward completion.

While investor anxiety was already elevated on scrutiny of AI data center returns and scale of construction pipelines, a public rebuke of AI from voters is catalyzing a massive reconsideration of the prospects for AIlinked stocks. Semiconductor shares are down 15% since the election, including 12% on Thursday, and 22% since late last week. That is a large historical move for semiconductor shares. This is the 13th instance of a greater than 20% decline over 6 days in the SOX index since January 2000, with all the others taking place during the dot-com bust and the initial COVID-19 sell-off. The index is now down 38% from its June high, though remains up 27% for the year.

The immediate reaction to the election results for AI linked stocks is understandable. Voters appear to not like AI, so why would investors? A more nuanced point of view is necessary, however. People say they dislike AI, but it is still in high demand, with insufficient supply. Much like the disconnect between low consumer sentiment and solid consumer spending, it usually pays to follow the money, not the surveys. Furthermore, Governors-elect, such as Ms. Hinojosa, are not arguing to stop all data center construction permanently. She is suggesting a more considered approach that compensates communities for the negative impacts of hosting data centers, such as higher power costs. Longer permitting timelines, more power self sufficiency and greater water conservation are likely some of the impacts to data center construction plans. This likely means higher costs and longer development timelines, not an end to data centers.

A silver lining may emerge from these changes. Many investors and other onlookers worried the pace of AI investment would run ahead of demand, resulting in a value destructive oversupply. A slowdown in development could result in a more healthy cycle, stretching development over a longer horizon. This increases the likelihood supply/demand remain in balance, improves the negative free cash flow of heavy builders such as the hyperscale cloud providers, potentially increases returns on existing compute capacity and reduces the demand for capital from the equity and debt markets. Should all these come to pass, there is the potential for a more healthy and sustainable economic cycle. With valuations having been significantly reduced for AI related companies, it is also possible to elongate the market cycle.

Wrap Up

It is likely too soon to declare an end to the current market swoon. Significant technical damage has been done to previously high-flying stocks and forward expectations for companies have yet to be adjusted to reflect new market realities. It is also unclear how the administration will react to the election, including with respect to Iran. That said, it may make sense to bear in mind the silver linings as the market does its thing. It is also worth noting that markets have been up over the six months following midterm elections 100% of the time since 1950. There is a first time for everything, but it is important to be mindful of historical patterns.

All market price as of the market close on November 5, 2026.

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