Stocks surged on Wednesday after Democrats won commanding victories in key races across the country, making it immediately clear to investors which party would control the House and Senate.
As the earliest results began to roll in on Tuesday night, Nasdaq 100 futures plunged as much as 2.5%.
But by Wednesday morning, the picture had changed dramatically.
The Nasdaq Composite jumped 2.2%. The broader S&P 500 surged more than 1.9%. The Russell 2000, which tracks small and medium sized companies, soared 1.5%. The Dow rocketed higher by 1,500 points.
Wall Street welcomed the clarity of the results, which marked a departure from previous years in which it took several days for decisive projections.
“The combination of a large Democratic majority in Congress and President Trump’s statement that he is willing to work with the opposition should act as a break on extreme policy outcomes and bring down risk premia,” said Deutsche Bank’s George Saravelos in a note Wednesday morning.
“The market is increasingly likely to interpret surprising policy shifts from the Executive as time-bound by the next Presidential election or the new domestic political configuration,” he added.
Economists at Goldman Sachs wrote that Democrats might now move to limit some of President Donald Trump’s most economically disruptive actions.
“We expect Democrats to use fiscal deadlines to seek to limit the war with Iran, roll back selected tariffs, and reverse spending cuts enacted last year,” they said in a note.
The price of oil, which has been pushed sharply higher this year due to the Iran war, declined by more than 9%.
But, experts said that results poised a major risk to the AI boom from politicians who will now take office.
“Key market implications include incrementally negative AI sentiment on greater expectations for data center restrictions,” said strategists at Morgan Stanley.
“At the federal level, the outcome is less likely to change the outlook for data center and AI regulation, which would still need bipartisan support,” said Goldman’s economists.
“However, 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.”
Several Democrats who won key governor’s races Tuesday have called for a pause in data center construction in their states, including Keisha Lance Bottoms in Georgia and Amy Acton in Ohio. In Texas, Democrat Gina Hinojosa defeated Republican Gov. Greg Abbott.
Possibly more than any other state, Texas has been a major focus for AI investors and a critical market for data centers.
Texas “is the one state with enough scale” where a slowdown could make a difference, Wolfe Research’s head of U.S. policy and politics, Tobin Marcus, wrote in a recent note.
SpaceX and Tesla, both engaged in the AI and data center businesses, fell around 4%. Musk, who runs both firms, was poised to become one of the biggest beneficiaries of Republican victories and spent hundreds of millions of dollars in support of GOP candidates.
Analysts at JPMorgan Chase also pointed to a potential “investigation risk” facing CEOs who have close ties to Trump.
Major companies ranging from Nvidia to Apple to NBC News’ parent company, Comcast, have donated millions of dollars to Trump’s pet projects, most notably his ballroom, and some of their leaders have regularly appeared alongside him at events.
Top Democrats have already signaled their interest in launching investigations of some of Trump’s projects in January, when their new congressional majority will give them subpoena power.
Tech stocks have played more of a role than any other sector to the surge in the value of U.S. equity markets over the last two years.
Trillion-dollar companies such as Amazon, Nvidia, Microsoft and Google parent Alphabet, as well as a handful of smaller data center startups, have poured hundreds of billions of dollars into developing AI models, building data centers and buying the equipment needed to operate them.
The AI boom has been a primary driver behind the Nasdaq 100’s gain of 40% since Election Day 2024, more than the S&P 500’s roughly 30% jump.
Any widespread slowing or halting of data center construction could put those unprecedented and sweeping investments, which many of the country’s top companies have stakes in, at risk.
“Democrats winning gubernatorial races in Texas, Ohio, and Georgia — which have a significant share of the U.S. project pipeline — means new pauses and restrictions on data center development,” Evercore’s Sarah Bianchi wrote late Tuesday.
Bianchi described the outcome of the midterms as a “blue tsunami.”
She added that “2027 is shaping up to be a turbulent year as developers will be forced to adapt to a shifting policy landscape,” but cautioned traders not to get ahead of themselves.
Bianchi wrote that “the impact of any pause or moratorium will hinge on the details, such as any grandfathering, and whether projects facing prolonged disruption can relocate to other states.”
Democrats were also projected to win Senate races in a number of battleground states where data centers were a major issue during the campaign, including Georgia, North Carolina, Michigan, Ohio, Iowa and Kansas.
“Data centers in space looking pretty appealing right now,” wrote Elon Musk on X. He has also proposed putting servers for AI systems in orbit above Earth. Most experts say the idea faces significant hurdles.
Even before Tuesday’s projected results, markets had been on edge for months about whether, and how, the AI boom and the massive investments tied to it would deliver returns.
On Friday, the S&P 500 and the Nasdaq both posted their worst days since mid-June after Intel and Amazon, two key suppliers to AI companies, reported mixed earnings results.
