By Nvidia shares NVDA fell on Wednesday as part of a broader sell-off in semiconductor stocks after Democratic victories in the US midterm elections raised concerns that data centre construction could slow down or become more expensive.
Nvidia was down about 1.5% around 1:38 pm, while other chipmakers also came under pressure.
Micron Technology shares fell more than 5%, Intel declined around 3.7%, and Broadcom lost more than 1%.
The Philadelphia Semiconductor Index was down over 3%.
Meanwhile, broader markets rallied, with Dow Jones gaining close to 3%, and S&P 500 and Nasdaq gaining about 1.8% each.
Investors had been concerned ahead of the elections that a Democratic sweep could weigh on companies linked to the artificial intelligence infrastructure boom by bringing tougher restrictions on data centre construction.
The victory of Democrat Gina Hinojosa in the Texas gubernatorial race intensified those concerns, given her pledge to impose an immediate moratorium on new data centre projects in the state.
Hinojosa defeated Republican incumbent Greg Abbott in a major upset on Tuesday.
During the final weeks of her campaign, she repeatedly criticised the rapid expansion of large server facilities and called for a statewide moratorium, vowing to “stop the data center takeover.”
Texas is central to the US data centre expansion, accounting for about 27% of planned capacity, according to Wells Fargo.
Texas and Ohio victories raise concerns for AI infrastructure
Dan Ives, partner at Yorkville Ives & Co., said the election results could slow the pace of data centre construction across the country.
“For tech investors the big focus is will these mid-term elections slow the pace of the planned 800 to 1,000 data centers across the US fueling the AI Revolution…the answer in our view is a clear YES,” Ives wrote in a note to clients.
“There is no way to sugarcoat that Democrats taking control, especially over the Senate, will create some major hurdles for AI and tech legislation in the Beltway over the next 2 years. While Trump will likely veto any major draconian AI safety or regulatory laws, this will force the tech industry (Big Tech CEOs) to the negotiating table to try to come up with compromises around legislation in Congress surrounding AI-related legislation.”
Ives described the Texas result as the “biggest worry” for technology investors and the AI trade, given that the state could account for around 25%-30% of planned data centre capacity.
Ohio has also emerged as a potential source of delays.
Morgan Stanley analysts said the election of Democrat Amy Acton as governor creates a significant risk of project delays in the state, including a 10-gigawatt development involving Nvidia that would be Ohio’s largest data centre project.
Nvidia has agreed to invest as much as $105 billion to support one of the world’s largest data centres, which is being built in Ohio and will be leased to OpenAI.
The state had already imposed a moratorium earlier this year on considering new applications for data centre tax exemptions.
Goldman Sachs economists also warned that political changes could affect infrastructure investment.
“Democratic wins at the state and local level are likely to lead to short-term data center moratoria, potentially affecting about 45% of planned US data center capacity expansion,” they said in a note.
Higher construction costs could affect Nvidia’s growth outlook
A slowdown in data centre construction could eventually temper demand for Nvidia’s graphics processing units (GPUs), which are essential for training and running AI models.
However, Ives argued that the change could result in a more measured expansion rather than derail the industry’s long-term growth prospects.
“We have always said 5%-10% of data centers might not get built from the political backlash, but the Street still is way underestimating the future revenue growth and profitability that AI will bring to the tech world (and other industries) over the next few years,” he added.
“Now it will happen at a more measured pace, which is likely a good thing in the eyes of many investors…and the market will digest this news and move forward.”
DA Davidson analyst Gil Luria told MarketWatch that the election results could also make data centres more expensive to build.
In some states, the additional costs could become “prohibitively expensive”, he said.
Luria explained that data centre projects are generally negotiated at the local level, allowing individual municipalities to determine the terms of agreements with developers.
“Overall, the additional hurdles for data centers may act to slow down the buildout in the US, which could limit the deployment of the chips that go into those data centers,” he said.
For Nvidia investors, the concern is that even if demand for AI computing remains strong, delays in securing approvals, higher infrastructure costs and local opposition could affect the pace at which new capacity comes online.
AI disclosure: AI tools assisted with research and drafting of this piece. An Invezz editor reviewed the facts, sources and wording before publication. Any opinions or analysis are Invezz’s, not those of an automated system.
The post Why is Nvidia stock falling while broader markets rally on Democratic midterm win? appeared first on Invezz