AI and Defence Stocks Decline Following Democratic Takeover of US Congress

Shares in the Artificial Intelligence (AI) and defence sectors witnessed a decline in pre-market trading on Wednesday after the Democratic Party gained control of the United States Congress. According to a report by Hindustan Times, investors are now adjusting their positions in view of the possibility of stricter oversight of the AI boom and shifts in policy priorities.

This Democratic victory includes key data-centre hubs such as Texas and Georgia, as well as traditional Republican strongholds. These results will bring a divided government to Washington, which may lead to increased Congressional scrutiny of industries that benefited under Republican control.

A decline was noted in the shares of data centre operators, with Core Scientific falling 3.5% and Iris 3.6%. Additionally, Applied Digital dropped 2.4% and CoreWeave 3.8%. Public opposition to the expansion of data centres has occurred this year, leading to concerns among investors that Democratic oversight could slow down investment.

Kit Riese, an investment strategist at Quilter, stated, "AI has been a massive engine driving the US economy, so any restrictions on its future growth could slow the pace of expansion." However, analysts believe that no law will be able to completely stop the construction of data centres, though there may be more hearings and investigations related to AI build-out.

On the other hand, clean energy shares saw a rally. Shares of First Solar rose 7%, Sunrun 6.1%, Enphase Energy 3.6%, and NextEra Energy 2.3%. In Europe, Vestas increased by 4.3%, Ørsted 6.4%, and Portugal's EDP Renewables 2.3%. According to Paul Jackson, Global Market Strategist at Invesco, rising oil and gas prices increase the economic incentive to adopt clean energy.

Democrats plan to investigate the reductions in emission rules made by the Trump administration and may use the Congressional Review Act to overturn rules that facilitated the sale of gas-powered trucks and SUVs.

Shares of Elon Musk's SpaceX fell 5.2% and Tesla 4.9%. According to Kathleen Brooks, Research Director at XTB, Musk spent millions of dollars on the Republican Party before the election, and thus these shares may struggle now that his political opponents have come to power. She further added that Congress may not be able to block a potential merger between SpaceX and Tesla, but could slow it down through further investigation. Trump Media and Technology Group fell 7.7%.

In the defence sector, Northrop Grumman fell 2.7%, while RTX, Lockheed Martin, and L3Harris dropped by more than 2%. It was previously expected that the ₹1.5 trillion budget requested by Trump would easily pass in a Republican-dominated Congress, but funding may now be lower than expected under Democratic leadership.

Meanwhile, the healthcare sector remained bullish. HCA Healthcare rose 5.4% and Universal Health Services 3.4%.