The midterms could fuel the K-shaped AI trade

Gina Hinojosa takes the stage as she is announced as the next governor of Texas at her watch party in Austin on Tuesday, Nov. 3, 2026.

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The U.S. midterms could widen the AI divide: tighter data center rules may reward tech giants with capacity in hand and squeeze debt-funded companies trying to catch up.

Democratic victories in key gubernatorial races raised the prospect of tougher scrutiny for data center projects, adding to investor concerns about how quickly new capacity can be built and financed.

In Texas, Democratic governor-elect Gina Hinojosa has proposed a statewide moratorium on new data center permits, although projects already under construction would reportedly be exempt.

As the markets digested the results on Wednesday, Microsoft and Amazon each surged more than 6%, while AI infrastructure provider CoreWeave plunged around 10%. Chipmakers Micron and Nvidia fell 7% and 3.17%, respectively.

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Microsoft and Coreweave

Differences in borrowing costs are playing a key role in the split, James Sullivan, managing director and co-head of global fundamental research at JPMorgan, told CNBC's "Squawk Box Asia" on Thursday.

Sullivan said borrowing spreads have widened significantly for neocloud companies, leaving their cost of additional capital substantially higher than that of hyperscalers that benefit from more diversified customers and revenue streams.

"The fact that you're seeing this bifurcation in equity performance is largely driven by the view that existing capacity is significantly more valuable now because of incremental supply constraints," he said.

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Data center risks

The midterm results could reinforce that view if they make new projects more vulnerable to permitting delays.

The potential impact is uneven across the construction pipeline. Much of the data center capacity expected to come online in 2027 is already under construction, limiting the near-term impact of new restrictions.