Democrats’ ‘clean sweep’ intensifies focus on AI companies

US midterm results are likely to make AI infrastructure more costly and slower to build, reinforcing the case for diversified portfolios despite a continued positive view on US equities.

• Democrats won control of both chambers of Congress, while Texas, Georgia and Pennsylvania elected Democratic governors; Texas and Virginia together host the large majority of existing and planned US data centres, with roughly a third of upcoming construction due in Texas.
• Opposition is increasingly local because states, counties and municipalities control planning permission, water use and tax incentives, and more areas are introducing data-centre moratoriums.
• Amazon, Google, Meta and Microsoft are spending more than $800 billion in aggregate this year, primarily on US data-centre construction; Meta and Amazon have each pledged $1 billion in incentives to host communities.
• The authors expect projects to proceed at higher costs and with longer timelines, which could reduce returns on AI infrastructure investment even though recent company updates indicate those returns remain high.
• Morgan Stanley data shows the S&P 500 rose over the 12 months after all 19 midterm elections since 1950, but elevated valuations, uncertain AI regulation and concentration in a small number of technology giants remain risks.

Takeaway: The team remains positive on the US and keeps it as the largest equity allocation, while political change, AI expectations and market concentration make diversification across regions and assets essential.