US STOCKS-Wall Street rallies after Democrats win Congress; data center stocks slide

By Shashwat Chauhan and Utkarsh Hathi

Nov 4 (Reuters) - US stocks rose on Wednesday as investors bet a divided Washington after the Democrats' midterm sweep could limit sharp policy shifts, though data center stocks were under pressure as concerns over tighter AI regulation weighed.

Democrats seized control of both the Senate and House of Representatives, scoring stunning wins in Republican strongholds for the first time in generations in a broad voter backlash against President Donald Trump.

The prospect of fewer sweeping legislative changes lifted some large technology stocks, but companies tied to the AI infrastructure buildout fell.

"The general view that this is a clearing event, so the uncertainty related to the elections is now behind us," said Scott Chornert, head of US equity strategy at Citi Research.

Among hyperscalers, Amazon.com AMZN.O jumped 7.1%, while Meta Platforms META.O added 1.6% and Alphabet GOOGL.O gained 3.4%.

At 09:46 a.m. ET, the Dow Jones Industrial Average .DJI rose 1,203.07 points, or 2.30%, to 52,989.79, the S&P 500 .SPX gained 129.88 points, or 1.72%, to 7,698.80 and the Nasdaq Composite .IXIC gained 540.38 points, or 2.13%, to 25,912.39.

The dollar weakened against most currencies and yields on long-dated Treasuries moved lower.

Trump acknowledged that the US-Israeli war on Iran played a role in his party's defeat in the elections.

Elon Musk-led SpaceX SPCX.O and Tesla TSLA.O were among the laggards, down 1.9% and 3.9%, respectively. Musk had spent nearly half a billion dollars backing Republican candidates, including efforts to keep Republicans in control in Texas, the home state of both companies.

Eight of the 11 S&P 500 sectors were trading higher, with consumer discretionary .SPLRCD leading gains.

AI TRADE IN FOCUS

The AI trade will be in focus after Democrats made gains in key data-center states including Texas and Georgia, where public opposition to the industry's rapid expansion has been growing.

"It's pretty clear that the AI trade will face some headwinds there.... If you push out the pace or change the pace of the data center build out, you begin to change the fundamental trajectory for many of those suppliers," added Citi's Chornert.

The AI trade has come under some pressure recently as investors grow wary of Big Tech's soaring AI spending and little evidence of adequate returns. The tech-heavy Nasdaq-100 .NDX index confirmed a technical correction on Monday.

Shares of data center operators IREN IREN.O, Hut 8 HUT.O, Applied Digital APLD.O and Core Scientific CORZ.O fell between 1.2% and 13%.

Chip stocks were muted despite AMD AMD.O forecasting faster-than-expected 2027 growth as its data-center sales surged. Shares of the chipmaker were last up 4.8% in choppy trading.

Defense stocks Northrop Grumman NOC.N, RTX RTX.N and Lockheed Martin LMT.N fell sharply, as Trump's $1.5 trillion budget request could now face a tougher road in Congress.

Solar and clean energy related companies moved higher, as a Democratic sweep could reinforce expectations of federal support for clean-energy development to remain in place. The Invesco Solar ETF TAN.P climbed 8.3%.

McDonald's MCD.N gained 3.9% after the fast-food chain beat quarterly profit estimates, while Block XYZ.N jumped 15% after the payments company raised its full-year gross profit outlook.

Advancing issues outnumbered decliners by a 3.6-to-1 ratio on the NYSE and by a 3.49-to-1 ratio on the Nasdaq.

The S&P 500 posted 42 new 52-week highs and 3 new lows while the Nasdaq Composite recorded 105 new highs and 54 new lows.