‘Blue wave’ shock hits the stock market… Plunge due to concerns over data center regulation

The reason the domestic stock market is falling sharply on the 5th is due to concerns that regulations related to the artificial intelligence (AI) industry may be strengthened following the Democratic Party's landslide victory in the U.S. midterm elections.

In particular, semiconductor and semiconductor equipment stocks are plummeting as concerns emerge that delays in data center construction will lead to a slowdown in new orders from memory companies.

On this day, the KOSPI index started off 1.8% weak and then its decline intensified. At around 10:16 a.m., the 'sell sidecar' was triggered due to a sharp decline of around 4%.

The KOSDAQ index also started down 0.2% and then grew to around 4%.

The sharp decline of both markets on this day is largely due to the large decline in semiconductor and semiconductor equipment stocks, which are representative stocks in each market.

In the stock market, Samsung Electronics and SK Hynix stock prices are falling 5.3% and 6.6%, respectively.

In the KOSDAQ market, the decline of top market capitalization semiconductor equipment stocks such as Jusung Engineering [036930] (-8.26%), Simmtech [222800] (-13.9%), and Wonik IPS [240810] (-11.92%) is strong.

The so-called 'blue wave', in which the Senate and House of Representatives and the majority of governors went to the Democratic Party in the U.S. midterm elections, appears to be coming as a shock to the domestic stock market.

The domestic stock market, whose market structure is focused on semiconductors and semiconductor equipment, is more vulnerable to a landslide victory by the Democratic Party, which emphasizes controlling the pace of investment in AI and data centers.

At 11:22 a.m. on this day, Japan's Nikkei 225 stock average was down 0.26% and Taiwan's stock market index was down 1.34%, a smaller drop than the domestic stock market.

In particular, as Democratic candidates are elected governors in major data center investment regions in the U.S., such as Texas and Ohio, concerns are growing that there is a greater possibility that permits and permits related to data center construction will be delayed.

For example, Texas accounts for approximately 30% of the new data center capacity expected to come online in the United States by 2028.

In addition, there are predictions that the local community's backlash against data centers will be confirmed in this election, and that the Democratic Party may push even harder on related regulations.

As a result of asking public opinions on data center bans or restrictions in 45 small communities across the United States in conjunction with the U.S. midterm elections, it was passed with more than 75% of votes in favor in most regions.

The 'blue wave' came as a shock to the stock market, where concerns about AI profitability had already been rampant following the credit crisis of US neocloud company Coreweave.

In the New York Stock Exchange last night, Nvidia (-3.17%), Broadcom (-2.00%), Micron (-7.00%), and SanDisk (-7.91%) fell sharply due to concerns that the growth rate of memory demand will slow down.

Big tech companies such as Amazon (+6.12%), Microsoft (MS·+6.68%), Alphabet (+3.18%), and Meta (+1.44%) rose, which is the result of expectations that cash flow will improve by alleviating concerns about overinvestment due to restrictions on data center construction.

Kim Ye-seul, a researcher at IBK Investment & Securities, said that it is unlikely that a bill related to the suspension of data center construction will actually be enacted in the United States, but pointed out, "It is highly likely that data center-related policies will converge to burden data center costs rather than block construction."

He said, “The risk is regulation at the state level, not federal level,” and added, “In the case of Texas, with the election of a Democratic governor who pledged a moratorium (suspension of construction), there is a high possibility that the withholding of data center licenses will be prolonged or converted to an official moratorium.”