Democratic victories in key gubernatorial races have raised concerns about tighter data center regulations that could widen the gap between AI leaders and smaller competitors.
In Texas, Democratic governor-elect Gina Hinojosa has proposed a statewide moratorium on new data center permits, though projects already under construction would reportedly be exempt.
Stock markets reflected investor concerns immediately after the midterm results. Microsoft and Amazon each surged more than 6%, while AI infrastructure provider CoreWeave plunged around 10%. Chipmakers Micron fell 7% and Nvidia dropped 3.17%.
The divergence stems partly from borrowing costs. James Sullivan, managing director and co-head of global fundamental research at JPMorgan, told CNBC that borrowing spreads have widened significantly for neocloud companies. "The fact that you're seeing this bifurcation in equity performance is largely driven by the view that existing capacity is significantly more valuable now because of incremental supply constraints," Sullivan said.
Hyperscalers like Microsoft and Amazon benefit from diversified customer bases and higher cash generation. Smaller companies relying on debt financing face substantially higher borrowing costs. JPMorgan Asset Management noted that financially stronger hyperscalers could also secure cheaper capacity or acquire assets if weaker operators scale back.
Data center capacity expected to come online in 2027 faces limited near-term impact from new restrictions since much is already under construction. Projects planned for 2028 face greater exposure to permitting delays and regulatory uncertainty, investment bank Nomura said Wednesday.
CoreWeave shares fell at least 30% in October as tightening credit markets raised questions about financing. The company's five-year credit default swap spread has surged past 1,100 basis points, reflecting rising costs for investors seeking protection against a potential default.