The headline move: Tesla and SpaceX fell between 3.5% and 6.9% in Wednesday premarket trading.
The bigger exposure: 27% + 7% + 5% + 5% = 44%, the share of planned U.S. data center capacity in the four states that just chose Democratic governors.
Democrats won both chambers of Congress on Tuesday night, according to projections, and the first market headline was about Elon Musk. Tesla and SpaceX fell before the open, about 5% and 6.9% on Bloomberg’s snapshot, and strategist Jay Woods told CNBC, “This is Elon Musk-land now.” The bigger exposure is not his. CNBC reported Wells Fargo’s shares of planned U.S. data center gigawatts one state at a time: 27% in Texas, 7% in Georgia, 5% in Ohio and 5% in Pennsylvania. Democrats have won or are projected to win the governor’s race in all four, and the sum is 44%. Japan’s chip suppliers sold off on that worry Wednesday. Nvidia, Microsoft and Amazon did not, and we think they are the ones out of line.
Adding Up Wells Fargo’s State Shares
The method is addition: 27 + 7 + 5 + 5 is 44. It is a floor, because it counts only the states CNBC named, and it assumes the four shares sit on one denominator, as the article presents them. NBC News’s results page at 5:35 a.m. Eastern had Georgia’s Keisha Lance Bottoms, Ohio’s Amy Acton and Pennsylvania’s Josh Shapiro as projected winners, and Gina Hinojosa ahead of Greg Abbott in Texas, 52.8% to 45.7% with 94.1% of the expected vote in. The AP has projected her the winner.
“Planned” is the word that matters. A planned gigawatt is not yet built, so it is the part a governor’s permits, utility regulators and tax breaks can slow, and the part Hinojosa’s backing of a moratorium on AI data centers is aimed at. A governor-elect’s position is not a statute, so 44% measures exposure, not lost capacity. Wells Fargo’s chief equity strategist, Ohsung Kwon, still described the downside in a note this week:
a Dem win could potentially be a left-tail event to the AI trade
A Relief Rally With Hedges Attached
Equities did what history says they do. Dow futures rose 724 points, or 1.4%, S&P 500 futures about 1%, and CNBC’s tally has the S&P 500 higher after each of the last 11 midterms since 1982. Gold disagreed: spot rose 2.93% to $4,043.45 an ounce and silver 4.44%, and Bloomberg reported the dollar sank the most in two months on concern about “political gridlock and tougher tech regulation that could damp foreign demand for US assets.”
Equities priced gridlock as comfort. Gold and the dollar priced it as policy risk, and so did First Solar and Sunrun, up more than 8%, and Plug Power, up 10.6%, while SpaceX, Tesla, the neoclouds and defense names lagged.
Tokyo Priced the Buildout, New York Has Not
CNBC tied Wednesday’s selloff in Asian chip stocks to “worries over curbs on AI infrastructure buildout.” Disco fell 10.19%, Advantest more than 8% and Tokyo Electron 7.04%, all chip-equipment makers. The U.S. side barely flinched. On CNBC’s live blog, Nvidia was up 0.5% premarket, Microsoft 0.3% and Amazon 1.1%, with Alphabet down 0.4%. The neoclouds shared the worry, CoreWeave down 3.6% and Nebius down 1%, and CoreWeave’s debt rout in October had already taken the Nasdaq to its worst week since June.
The worry was visible before the Texas call. In a Bloomberg Television segment late Tuesday, a market commentator said Nasdaq futures were falling harder than S&P futures, described “concentrated weakness” in big-cap growth and floated “this data center read through” as one explanation. By Wednesday morning CNBC had Nasdaq-100 futures about 1% higher: the index let go of the worry while the individual names kept it.
Our read: the Japanese suppliers are closer to right than the U.S. buyers. Chipmakers and their equipment vendors sell against forecasts of buildout, so a threat to the pipeline reaches their order books before it touches a company whose existing sites are already energized. The counterargument is timing. Tokyo traded overnight and New York has not opened, so the gap may close at 9:30 a.m. Eastern. If it closes with Nvidia and Microsoft falling, 44% was the number to watch. If it closes with Disco recovering, the market was right to ignore it.
What Settles It
The open is a weak test, because premarket prints move on thin volume. A better one is the next large data center announcement, and whether Texas is still the first state named. If it is, Tokyo overreacted. If the sites start going elsewhere, the U.S. buyers are still pricing the old map, and 44% is the number they will have to reprice around.