AI data center stocks dip, renewables surge after Democrat sweep in US midterm elections

By Purvi Agarwal and Johann M Cherian

Nov 4 (Reuters) - Data center stocks slid in premarket trading on Wednesday, while clean-energy shares rallied after Democrats seized control of Congress, prompting investors to reposition for tougher scrutiny of the AI boom and a shift in policy priorities.

The Democratic sweep, which included victories in traditional Republican strongholds and key data-center hubs Texas and Georgia, will usher in divided government in Washington and raises the prospect of greater congressional oversight of industries that benefited from Republican control.

Market reaction rippled across AI-linked stocks, renewables, healthcare companies, defense contractors and prison operators.

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DATA CENTER STOCKS

Data center operators lost ground, with Core Scientific CORZ.O down 3.5% and Iren IREN.O down 3.6%. Applied Digital APLD.O and CoreWeave CRWV.O fell 2.4% and 3.8%, respectively.

The data center boom sparked public backlash this year, raising concerns that tighter Democratic oversight could slow investment just as investors grow wary of soaring AI spending and uncertain returns.

Though analysts doubt any legislation could meaningfully stall data center construction, a Democratic-led Congress increases prospects of more hearings and investigations related to the AI buildout.

"AI has been an enormous engine powering the US economy, so any curbs on its future development could threaten to put the brakes on growth," said Kit Rees, investment strategist at Quilter.

CLEAN ENERGY

A Democratic sweep could bolster expectations for continued federal support for clean energy while speeding approvals for energy and infrastructure projects.

Democrats plan to scrutinize the Trump administration's efforts to roll back emissions rules and could use the Congressional Review Act to overturn regulations that make it easier to sell gas-powered trucks and SUVs.

Shares of solar maker First Solar FSLR.O gained 7%, residential solar installer Sunrun RUN.O added 6.1% and inverter maker Enphase Energy ENPH.O was up 3.6%. Clean-power developer NextEra Energy NEE.N inched 2.3% higher.

"The more that oil and gas prices rise, the bigger the incentive, the bigger the economic incentive to roll out clean energy," said Paul Jackson, global market strategist for EMEA at Invesco.

Europe's Vestas VWS.CO and Orsted ORSTED.CO rose 4.3% and 6.4%, respectively, while Portugal's EDP Renewables EDPR.LS was up 2.3%.

ELON MUSK-LED COMPANIES

Shares of Elon Musk's rocket and space technology company SpaceX SPCX.O dropped 5.2%, while EV maker Tesla TSLA.O was down 4.9%.

"It puts into doubt a potential merger between SpaceX and Tesla. While Congress cannot stop a merger, they could slow it down via extra scrutiny," said Kathleen Brooks, research director at XTB.

"Musk had poured hundreds of millions into the Republican Party ahead of these elections...we could see stocks linked to Musk struggle now that his political enemies have won back control of Congress."

Trump Media & Technology Group DJT.O, majority-owned by Trump, dropped 7.7%.

DEFENSE STOCKS

Defense contractors such as Northrop Grumman NOC.N fell 2.7%, while RTX RTX.N, Lockheed Martin LMT.N and L3Harris LHX.N lost over 2% each. The sector had been underpinned by expectations that the $1.5-trillion budget request by Trump would not face headwinds in a Republican-dominated Congress.

However, in a Democrat-led Congress, analysts project the funding could fall short of expectations.

HEALTH INSURERS AND HOSPITAL OPERATORS

Shares of hospital operators such as HCA Healthcare HCA.N and Universal Health Services UHS.N gained 5.4% and 3.4%, respectively.

Insurers such as Centene CNC.N rose 4.7% and Elevance ELV.N was marginally higher.

Democrats have pushed for universal healthcare policies that could mean more government spending allocated to the sector.

BNP Paribas economist Anis Bensaidani said Democrats may lack the numbers to pass legislation restoring major parts of the Affordable Care Act, but they could still win concessions while negotiating over defense spending and government funding.

PRISON OPERATORS

Prison operators such as GEO Group GEO.N and CoreCivic CXW.N fell 6.2% and 5.7%, respectively. The two stocks have rallied sharply since Trump won the presidency two years ago, as his clampdown on illegal immigration boosted the need for detention facilities.