After the Democratic Party's overwhelming victory in the mid-term elections on Tuesday, Neocloud stock suffered a heavy setback on Wednesday.
CoreWeave, Nebius and Iren Limited fell after the results were released. Previously, these stocks were under pressure in October due to investors' concerns about industry debt issues.
The market is now concerned that a Democratic victory could slow down the pace of data center construction. Neocloud companies, by renting out computing power to AI customers, were at the center of the selling pressure on Wednesday, and investors believe that AI transactions face new obstacles.
On Wednesday, the main changes for Neocloud and large data center spending companies are as follows:
- CoreWeave: Down 9.2%
- Nebius: Down 6%
- Iren: Down 11%
- SpaceX: Down 4%
The Democratic Party won the majority of seats in both the Senate and the House of Representatives, as well as the gubernatorial election in Texas. Texas is a key state for the development of AI data centers and is expected to account for 30% of the future computing power by 2030.
According to UBS ( UBS ), it is estimated that about 30% of the new data centers planned to be built in the next two years may be affected by the results of the "Blue Wave" election. Meanwhile, a poll conducted by NBC News on Tuesday showed that more than three-quarters of voters oppose the construction of new data centers in their communities.
Yorkville Ives, the founder of the research institution that has been extremely optimistic about AI transactions in recent months, adopted a more pessimistic tone on Wednesday.
"For technology investors, the key question is whether these mid-term elections will slow down the construction of 800 to 1000 data centers planned across the United States, projects that are driving the AI revolution... In our view, the answer is clearly yes," Ives wrote in a report to clients. "It is undeniable that the Democratic Party's control of Congress, especially of the Senate, will create significant obstacles for Washington's AI and technology legislation in the coming two years."
However, in other areas of the AI transaction, optimism has not been completely dampened. Hank Smith, the head of investment strategy at Haverford Trust who manages assets worth approximately $17 billion, stated that investors need not panic excessively, believing that the AI transaction will not come to a halt as a result.
Smith says that the construction of data centers is likely to slow down slightly, which will put some 'shovel-selling' assets under pressure, despite the still strong fundamentals.
However, he stated that a slowdown in spending may ultimately be beneficial for hyperscalable cloud service providers as well as for transactions themselves, as investors will have more time to digest these moves.
Smith said to Business Insider on Wednesday morning: "The good news is that this might cool down the situation where there has been substantial financing in the past, and which has been causing concern for investors over the past six months."
"This may be well received by the market," he added.
In October, Neocloud faced pressure as investors became concerned that the yield on CoreWeave's bonds exceeded 15%, causing bond prices to drop to levels typically associated with distressed credits. In the past few weeks, investors have also generally sold stocks related to AI due to concerns over rising borrowing costs, high valuations, and weakened corporate demand.
