The US midterm elections delivered a decisive victory for the Democrats, triggering sharp movements across financial markets. Technology stocks have been hit particularly hard, with the Nasdaq falling more than 5% in a single session as markets appeared to worry about the future of artificial intelligence investment.
But while the political landscape has changed, the fundamental investment story behind AI remains remarkably strong. Indeed, the recent sell-off could present an attractive opportunity for long-term investors.
The reason for the concerns in markets are that many Democratic politicians have talked about tougher regulations which could slow the construction of AI data centres across America. These enormous facilities house the powerful computers required to train and operate AI systems. They consume vast amounts of electricity and water, making them increasingly controversial in some communities.
Investors fear that Democratic politicians could introduce restrictions on new developments, increase environmental requirements or make projects more expensive.
These concerns helped drive the Nasdaq, America’s technology-heavy stock market, down approximately 5.5% in one session on Thursday 5th November.
However, the market may be overlooking an important distinction: slowing some projects is very different from stopping America’s AI revolution.
The United States is an enormous country, comprising 50 states, each with its own state government, economic priorities and approach to development. While some Democratic politicians oppose particular data-centre projects, others recognise the enormous economic opportunities they bring.
AI infrastructure creates construction jobs, attracts investment, generates tax revenues and can strengthen local economies. Support for the industry crosses political boundaries.
Further, the world’s largest technology companies have already committed extraordinary resources to expanding their AI capabilities. Amazon, Microsoft, Alphabet (Google) and Meta are collectively planning approximately $740 billion of capital expenditure in 2026 alone.
That is almost three-quarters of a trillion dollars from just four companies. Looking ahead, industry forecasts suggest that annual spending across the wider AI infrastructure ecosystem could approach or exceed $1 trillion in 2027.
Where does all that money go? This is perhaps the most important question for investors. Hundreds of billions of dollars do not simply disappear into data centres. They become revenues for businesses supplying the technology and infrastructure required to build them.
Consider some of the potential beneficiaries. Nvidia produces the advanced chips powering AI computing. Broadcom develops specialised AI chips and networking technology. Taiwan Semiconductor Manufacturing manufactures many of the world’s most sophisticated semiconductors. ASML supplies essential equipment used to manufacture advanced chips.
These companies and many more represent different parts of the AI supply chain, from semiconductor manufacturing to electricity distribution. The scale of planned expenditure provides considerable visibility into the expected growth and success of these businesses over coming years.
Despite this clear pathway of rising investment in AI, the Nasdaq has risen only around 5% over the past year. This relatively modest performance contrasts with the extraordinary expansion of spending on the technology.
For long-term investors, that divergence is worth considering. Share prices can fluctuate dramatically in response to political developments, but ultimately corporate earnings and cash flows are what drive investment returns over time.
The DCS New Technologies Fund provides exposure to companies participating in major technological developments, including the AI investment cycle. Broader investment indexes such as Nasdaq-tracking funds and global technology funds can also provide exposure to many of these businesses.
The US election result, while important, is unlikely to make much difference to the capex plans of the major AI players globally. This is an unprecedented investment cycle which will continue nonetheless.
And the election results have also brought potentially positive developments for investors. Oil prices have fallen sharply, with Brent crude dropping below $100 per barrel as markets anticipate a reduced likelihood of further escalation in the conflict with Iran.
A less confrontational approach towards Iran could reduce geopolitical uncertainty and ease pressure on global energy supplies. Lower oil prices are particularly important because energy costs affect almost everything we buy, from food and transport to manufacturing and electricity. If lower prices persist, they could help reduce inflation, improve household purchasing power and ease pressure on interest rates.
These developments would be positive for the broader economy and potentially supportive of equity markets, including technology shares.
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