Prediction: Wall Street Has the Post-Midterm Artificial Intelligence (AI) Trade Completely Wrong
Wall Street appears to have found a silver lining following the Democrats’ sweeping victories in the 2026 midterm elections. With Democrats gaining control of both chambers of Congress, investors are considering whether more regulation could slow the construction of artificial intelligence (AI) data centers across the United States.
At first glance, that might actually benefit Microsoft(NASDAQ: MSFT),Amazon(NASDAQ: AMZN),Alphabet(NASDAQ: GOOGL) (NASDAQ: GOOG), andMeta Platforms(NASDAQ: META). After all, building AI infrastructure is expensive.
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If Big Tech is forced to reduce capital expenditures (capex), their free cash flow could improve. Meanwhile, a shortage of compute capacity could allow existing data center operators to charge higher prices. While this all makes sense in theory, I think Wall Street may be overlooking an important possibility.
Wall Street thinks AI regulation will benefit the hyperscalers
Over the last several years, the hyperscalers have committed hundreds of billions of dollars to expanding AI infrastructure. These investments include procuring graphics processing units (GPUs), building data centers, and securing electricity. However, a number of candidates used data centers as a controversial topic during their time on the campaign trail. For many people around the country, data centers have fueled rising utility costs.
Following the midterms, Wall Street is considering whether new legislation or tighter permitting requirements could make additional U.S. data center projects more difficult to pursue. The financial argument is pretty straightforward: If the hyperscalers slow down their infrastructure investments, capex would decline and free cash flow would rise. At the same time, continued demand for compute could create a supply demand imbalance. Companies with existing capacity would be in a position to charge higher utilization and command pricing power.
The combination of lower spending and higher revenue per unit of compute would be favorable for the hyperscalers. With that said, this assumes that AI developers respond to potential regulatory restrictions by slowing down the pace of their infrastructure roadmaps.
Follow the money
During a discussion with TheWall Street Journal on Nov. 4, Meta’s president and vice chair, Dina Powell McCormick, acknowledged that the election results could complicate future data center development domestically. She says starting new domestic projects may be harder and raised a question that could reshape the AI investment narrative: “Do we need to build outside the United States?”
