Wells Fargo: AI Investment Spillover Benefits Industrial Stocks, Midterm Elections Pose Biggest Political Risk
A Wells Fargo report indicates that AI capital expenditure is benefiting industrial stocks, but political headwinds pose the biggest risk to data center construction. Public opposition is high, with 71% of Americans opposing local AI data centers, and New York State has enacted a one-year moratorium. The upcoming US midterm elections are critical for the future regulatory landscape.
A new report from Wells Fargo strategist Ohsung Kwon reveals that Big Tech's artificial intelligence capital expenditure is beginning to significantly impact the broader economy, particularly benefiting industrial stocks and capital goods companies. Kwon highlighted that approximately 40 large-scale data centers are under construction across the United States, with over 100 more planned, concentrated in states like Texas, Georgia, Virginia, and Pennsylvania. Companies such as Caterpillar, Vertiv, and Eaton are experiencing record revenues and backlogs, driven by demand for power generation equipment and construction machinery from AI data center builds.
However, Kwon warns that political backlash is becoming the primary risk to sustained data center expansion. A Gallup survey indicates that 71% of Americans oppose local AI data center construction, and 77% are concerned about rising electricity prices. In July, New York State enacted the nation's first one-year moratorium on large-scale AI data centers. Furthermore, at least 12 gubernatorial candidates have voiced support for similar pauses, and several states are reconsidering data center tax incentives.
Opponents have staged 142 protests across 42 states this year, leading to 75 projects, representing an estimated $130 billion in investment, being blocked or delayed in the first quarter alone. While the Trump administration introduced a non-binding "Ratepayer Protection Pledge," its effectiveness in mitigating public concern is uncertain. The report emphasizes that the outcome of the November U.S. midterm elections will be a key determinant of the future regulatory environment and the long-term sustainability of the AI investment spillover into the broader economy.