[Good Morning Stock Market] U.S. Midterm Election "Blue Wave"... AI Stocks See Mixed Fortunes

Yonhap News Agency

U.S. stocks closed higher after Democrats scored a bigger-than-expected victory in the U.S. midterm elections. Investor sentiment improved as political uncertainty eased and expectations grew for policy changes, but the possibility of AI regulation came into focus, leading to divergent performances among stocks in the AI value chain. South Korea's stock market is also expected to see diverging moves between AI-related sectors, such as semiconductors and power equipment, and non-AI sectors, such as secondary batteries and solar energy.

On Nov. 4 (local time), the Dow Jones Industrial Average rose 3.1% from the previous session on the New York Stock Exchange. The S&P 500 and Nasdaq Composite also gained 1.6% and 1.4%, respectively. The Philadelphia Semiconductor Index, however, fell 3.1%, highlighting the divergence between sectors. Hyperscalers such as Amazon (up 6.1%) and Microsoft (MS; up 6.7%) rose, while semiconductor and data center-related stocks such as Micron (down 7.0%), Nvidia (down 3.2%), and CoreWeave (down 9.9%) weakened.

Han Ji-young, a researcher at Kiwoom Securities, said, "With Democrats taking control of Congress, AI regulation has come into focus, leading to divergent stock price movements even within the AI value chain."

Some Democrats are pushing to halt new data center construction, and a Democratic governor who campaigned on regulation was elected in Texas, where data centers are concentrated. This has fueled concerns that investment costs for new data center projects could rise or that their development could be delayed.

However, analysts say the likelihood of nationwide regulations becoming reality is limited. They say sweeping regulation would face constraints given the presidential veto, competing interests within the Democratic Party, and the United States' AI competitiveness. More realistic alternatives being discussed include increasing companies' share of the costs of expanding the power grid and restricting permits in some areas.

"There should be no major disruption to investment schedules for data centers already under development," Han said. "The impact on existing supply contracts and the damage to earnings outlooks for AI infrastructure companies should be limited."

Democrats' control of Congress could instead help stabilize oil prices and interest rates. This is because stronger congressional scrutiny of war budgets and military operations could raise expectations for a ceasefire in the war between the United States and Iran. On Nov. 4, West Texas Intermediate (WTI) crude plunged 8.3%. The possibility that limits on additional tax cuts and expanded fiscal spending could reduce the burden of U.S. Treasury issuance is also seen as a factor that could stabilize long-term interest rates.

After plunging more than 4% the previous day as investors assessed the midterm election results, South Korean stocks rebounded. The KOSPI closed up 0.6%, while the KOSDAQ gained 1.5%.

Commenting on South Korea's stock market on Nov. 5, Han said, "Despite the strength of U.S. stocks, concerns about delays in new data center construction remain. We expect diverging performances between AI stocks, such as semiconductors and power equipment, and non-AI stocks, such as secondary batteries and solar energy."

However, she said another sharp decline like the recent one was unlikely. Her assessment is that data center regulations are unlikely to lead to a structural contraction in the AI investment cycle, and that much of the related concern has already been reflected in recent share price adjustments.

From Oct. 1 to Nov. 4, while the KOSPI fell 16.9%, machinery (down 29.9%), IT hardware (down 26.5%), shipbuilding (down 26.3%), and semiconductors (down 20.1%) recorded even steeper declines.

"At current share price levels, there is little reason to further price in negative scenarios involving a slowdown in AI investment, cracks in related demand, and diminished visibility into semiconductor earnings," Han said. "Rather than reducing exposure to semiconductors and the KOSPI overall, investors could wait and see or consider staggered purchases, focusing on sectors that have fallen excessively."

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