AI TRENDS | U.S. Midterms Could Widen K-Shaped Divide Across AI Sector

U.S. midterm election results could widen a K-shaped divide in the AI sector as tighter data-center oversight slows new projects. According to Sina Finance, Nomura Securities said Democratic victories in several governors’ races could bring stricter reviews, while JPMorgan’s James Sullivan said limits on new compute supply could raise the value of existing capacity. In Texas, governor-elect Gina Hinojosa proposed a statewide pause on approvals for new data centers; projects already under construction may be exempt, according to reports. On Wednesday, as markets digested the election results, Microsoft and Amazon shares rose more than 6%, while CoreWeave (CRWV) fell about 10%. Micron and Nvidia declined 7% and 3.17%, respectively. Sullivan, JPMorgan’s co-head of global fundamental research and managing director, said Thursday on Asia Squawk Box that differences in borrowing costs were a central factor in the share-price divergence. He said neocloud credit spreads had widened substantially, leaving their incremental capital costs well above those of hyperscalers, which have more diversified customer bases and revenue streams. He described the market’s polarization as reflecting a consensus that constrained new supply had sharply increased the value of existing compute capacity. The Business Times, citing BMI’s post-election analysis, reported that BMI warned a sharp cooling in data-center construction and AI investment could cause overall investment to fall more than markets expect. Nomura said projects planned for 2028 were more vulnerable to permitting delays and regulatory uncertainty, while many data centers scheduled to come online in 2027 were already under construction, limiting the near-term impact. It said tighter data-center regulation from 2028 could become a major headwind for AI investment. As credit markets tightened, investors questioned the outlook for neocloud providers. CoreWeave, Nebius and Iren, which have received investment from Nvidia, each fell at least 30% in October. CoreWeave’s five-year credit default swap spread surged above 1,100 basis points, sharply increasing the cost of hedging against its default risk. A JPMorgan Asset Management report dated October 20 said the ability to withstand construction delays and continue funding compute capacity under development would be a key dividing line. Hyperscalers have established cloud businesses and ample internally generated cash flow, while lower-rated neocloud providers are more exposed to borrowing costs, energy prices and refinancing conditions. The report said well-funded hyperscalers could have opportunities to acquire capacity at low prices or purchase assets if weaker operators are forced to scale back.