"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

As the U.S. midterm elections approach, political noise surrounding artificial intelligence (AI) data centers is intensifying. However, according to analysis by securities firms, the attractiveness of companies that have already secured electricity and land is expected to increase after the election.

Recently, Yeonju Cho, a researcher at NH Investment & Securities, stated, "Historically, the U.S. stock index has shown a consistently upward trend in the 12 months following a midterm election," and added, "In reality, the practical effect of recent political friction—such as data center regulations—has merely led to some project completion delays, not cancellations. Therefore, an investment strategy that leverages this noise remains effective."

‘Techlash’ Becomes an Election Issue...Low Chance of Federal Legislation

This year, inflation has emerged as the most significant issue in the U.S. midterm election climate. The political sphere is fueling 'techlash', referring to the popular backlash against technology companies. In particular, rising electricity and water rates caused by data center construction have drawn opposition from local voters, prompting some state governments to freeze permits or revoke tax incentives.

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 are assessments that such pressure is unlikely to lead to substantial institutional legislation. Cho pointed out, "Currently, data center regulations are being led at the state and municipal levels, resulting in extreme fragmentation." She added, "At the federal government level, legislation to regulate AI is essentially stalled due to conflicts of authority between federal and state governments, leaving little chance for comprehensive regulations to be enacted."

"Focus on Companies Securing Electricity and Real Estate"

The longer business delays stemming from political friction persist, the more valuable companies that have already secured resources will become. In particular, companies that have built on-site power generation facilities capable of bypassing grid connection challenges are seen as key beneficiaries.

Cho observed, "Power generation within data centers themselves can circumvent the rising costs of grid connection and controversies over shifting residential rates." She forecasted, "Companies expected to benefit include GE Vernova, which supplies gas turbines; Bloom Energy, a fuel cell company; Vertiv, a power management firm; and Oklo, a developer of small modular reactors (SMR)."

Real estate investment trusts (REITs) that already own industrial land, which can be repurposed for data centers, were also presented as promising alternatives. Prologis and Equinix are cited as representative examples. Projects that utilize pre-designated buildings are assessed as effective options for avoiding state government moratoriums and pushback from local communities.

Neo-Cloud, Semiconductor, and Large IT Company Oligopoly Expected to Strengthen

As hyperscalers—large-scale AI infrastructure and cloud providers—face delays in building their own data centers, the value of long-term contracts with neo-cloud (AI-optimized cloud) companies such as CoreWeave and Navious is expected to rise. Additionally, the semiconductor sector is viewed as relatively immune to regulatory impact, as the replacement cycle is shortening in favor of more power-efficient, customized AI semiconductors.

Cho emphasized that the stock price corrections caused by political noise should be viewed as buying opportunities. She added, "Permit disputes and difficulties securing grid connections, paradoxically, will serve as entry barriers that strengthen the oligopoly of hyperscalers with massive capital and robust response organizations."

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