Concerns about data center regulation due to US blue wave... Stock market: “An outlook for each company in the AI industry.”

As concerns about strengthening regulations on the artificial intelligence (AI) industry grow as the majority of the Senate and House of Representatives and the governor's office go to the Democratic Party in the U.S. midterm elections, there is an analysis in the securities market that there is little possibility that the U.S. trend of expanding AI investment itself will decline.

However, as regulations surrounding data center construction are strengthened by region, it is expected that the cost burden and stock price trends of each company in the AI ​​industry may be differentiated.

According to the financial investment industry on the 5th, Lee Young-gon, head of the Toss Securities Research Center, said, “The Democratic Party and the Republican Party have differences in policy means and approaches, but their interests are aligned in the goal of building a U.S.-centered high-tech semiconductor supply chain and securing technological superiority in China.”

However, he predicted, “Data center power consumption, rising electricity rates, and environmental issues may emerge as political issues,” and “the Democratic Party’s control of Congress could serve as an opportunity to increase supervision and regulatory pressure on these issues.”

He continued, “Because a huge amount of capital is required to respond to regulations and procure own power, it will become difficult for new companies to enter the market, while the competitive advantage of big tech that has already secured capital and infrastructure can be strengthened.”

As Democratic candidates are elected governors in Texas, Ohio, and Georgia in this election, there is a possibility that community backlash surrounding data center construction will lead to regulatory actions and delays in licensing.

However, the securities industry believes that it will not be easy to introduce nationwide data center regulations.

Han Ji-young, a researcher at Kiwoom Securities, said, “There are limitations to the realization of nationwide regulations considering the presidential veto, internal interests within the Democratic Party, and the U.S. AI competitiveness,” adding, “Increasing the burden on companies for power grid expansion costs and restricting licensing in some regions are being discussed as alternative regulations.”

Although the Democratic Party secured a majority position in both houses, the fact that it did not reach the two-thirds majority needed to override President Donald Trump's veto is also a limiting factor.

Heo Jae-hwan, a researcher at Eugene Investment & Securities, said, “There is no impact on the data center volume in 2027 because construction has already begun.” He added, “What is at issue through this election is the construction of data centers after 2028.”

He continued, “For the time being, data centers that have already been built will become scarce, and it is likely that new construction will take more time,” and predicted, “It is not good news for companies that have greatly benefited from AI infrastructure, such as Korea and Japan, but the pressure and bleeding competition caused by severe capital bottlenecks can be alleviated.”

Last night in the U.S. stock market, stock price trends were mixed between AI infrastructure providers such as big tech and semiconductors that have secured existing infrastructure.

Researcher Jiyoung Han analyzed, “While free cash flow (FCF) is expected to improve due to the relief of facility investment burden for hyperscaler companies, it has acted as a burden for AI infrastructure suppliers such as memory and power devices that are highly dependent on facility investment.”

Byun Jun-ho, a researcher at IBK Investment & Securities, also pointed out, "It is unlikely that data center regulation issues will materialize in the short term," but added, "Uncertainties in supply and demand may remain as domestic and global funds may adopt a 'long-short' strategy of selling Korean memory and buying American big tech."

On the other hand, the plunge in international oil prices following the Democratic Party's landslide victory is considered a positive variable for the domestic stock market. This is due to the growing expectations for an early end to the war as the midterm elections show voters' judgment on the war in Iran and high inflation.

Last night on the New York Mercantile Exchange, the price of West Texas Intermediate (WTI) crude oil (WTI) for December delivery ended trading at $88.12 per barrel, down 8.29% from the previous day. The price of Brent crude oil January futures also closed at $94.62 per barrel, down 8.67%.

Seo Sang-young, managing director of Mirae Asset Securities, said, “The sharp drop in oil prices, falling interest rates, and the weakening dollar provide a positive environment for domestic consumption, the domestic economy, and the financial market as a whole.” He added, “It is a factor that lowers the burden of corporate costs and price pressure for the Korean economy, which is highly dependent on energy imports.”

With the Democratic Party's control of Congress, expectations for policies on eco-friendly energy and the secondary battery industry may increase, but some analysts say that it remains to be seen whether this will lead to actual benefits.

Director Lee pointed out, “As the administration is still dominated by President Trump, it is not easy for the Democratic Party to actively pursue support policies for eco-friendly industries,” adding, “It is difficult to expand new subsidies or change large-scale policies.”

The securities industry predicts the possibility of a short-term rebound in the domestic stock market after the midterm elections, but believes that additional conditions need to be improved for a sustained rise.

Researcher Byun predicted, “After the midterm elections, the market showed a common characteristic of reacting more sensitively to good news than bad news,” and added, “KOSPI is also (currently) showing extreme undervaluation, so it is highly likely that it will be sensitive to good news.”