"Are Data Centers the Scapegoat of the U.S. Midterms? Time to Exploit Investment Opportunities" [Weekend Money]

"Comprehensive Federal Regulation Remains Unlikely"
Focus on Companies Securing Resources

Although political noise around artificial intelligence (AI) data centers is growing ahead of the U.S. midterm elections, analysts in the securities industry have indicated that, after the elections, the investment appeal of companies that have already secured electricity and land will actually increase.

Recently, research analyst Cho Yeonju at NH Investment & Securities explained, "Over the 12 months following past U.S. midterm elections, stock indices have consistently trended upward," and stated, "The practical effects of recent political friction, such as data center regulations, have mostly amounted to partial project delays rather than outright cancellations, which means that an investment strategy exploiting this noise remains effective."

‘Techlash’ Becomes an Election Issue…Federal Legislation Remains Unlikely

During this year’s U.S. midterm election cycle, inflation has become the biggest political issue. Lawmakers are stoking a ‘techlash,’ referring to the public backlash against technology companies. In particular, rising electricity and water bills caused by data center construction have triggered opposition among local voters, prompting some state governments to freeze permits or revoke tax benefits.

On July 18 (local time), a protester in Berkeley, California, USA, held a sign opposing the data center. Photo by Reuters Yonhap News

However, there is an assessment that such pressure is unlikely to result in concrete legal or institutional reforms. Analyst Cho pointed out, "Current data center regulations are driven by state and local governments, resulting in significant fragmentation," and added, "At the federal level, legislation to regulate AI is structurally unlikely to pass due to power struggles between the federal and state governments, so the emergence of comprehensive regulations is also highly unlikely."

Focus on Companies That Secure Power and Real Estate

The longer business delays persist due to political friction, the more valuable companies that have already secured resources become. In particular, companies that build on-site power generation facilities to bypass the public grid are emerging as major beneficiaries.

Cho noted, "Generating power onsite at data centers can circumvent both the rising costs associated with grid access and controversy over passing those costs on to residential customers," and predicted, "Companies such as GE Vernova, which supplies gas turbines, Bloom Energy, a fuel cell company, Vertiv, which focuses on power management, and Oklo, a developer of small modular reactors (SMRs), are likely to benefit."

Real estate investment trusts (REITs) with industrial land that can be repurposed for data centers were also suggested as promising alternatives. Prologis and Equinix are cited as notable examples. Projects that utilize buildings with pre-designated uses have been diagnosed as effective options to bypass state-level moratoriums or local community opposition.

Strengthening Oligopoly of Neo-Cloud, Semiconductor, and Large IT Companies Expected

With construction delays in proprietary data centers, hyperscalers—large-scale AI infrastructure and cloud providers—are increasingly renting external capacity, which is expected to raise the long-term contract value of neo-cloud (AI-optimized cloud) companies such as CoreWeave and Navius. Furthermore, the semiconductor sector is expected to remain relatively unaffected by regulations, thanks to an accelerated replacement cycle toward highly energy-efficient customized AI chips.

Cho emphasized that price corrections caused by political noise should be seen as buying opportunities. He added, "Friction over permits and difficulties in securing power grids paradoxically strengthen entry barriers that reinforce the oligopoly of hyperscalers with large capital and response organizations."

This content was produced with the assistance of AI translation services.