SINGAPORE – The Democratic Party’s unexpected takeover of both chambers of the US Congress is giving way to renewed debate on what the future holds for the AI infrastructure build-out.
For Singapore and other Asian economies riding the AI investment boom, the key question after the Democrats’ US midterm sweep is whether tighter scrutiny will derail data centre spending or impose the financial discipline investors want.
With technology stocks rallying after the vote, markets appear to be betting on a more measured build-out rather than an abrupt slowdown.
Beyond US interest rates, bond yields and tariffs, the election’s biggest implication for Asian exports, including Singapore’s, is its potential impact on the AI boom, which has become a major growth driver.
If Democrats, who are mostly sceptical about artificial intelligence, take an aggressive policy approach towards the construction of new data centres, the much-feared scenario of a sharp pull-back in economic growth and a financial market upheaval may yet be possible.
However, there is optimism that things may not go that far.
In fact, the unexpected scale of the Democratic victory is giving way to an even more surprising rally in tech stocks, the opposite of what was expected over the past month, when stocks of Big Tech hyperscalers were hammered.
The US tech benchmark Nasdaq Composite rose 1.44% on Nov 4, the day after the midterms, after having suffered a massive sell-off over the past month. Shares of Google’s parent Alphabet surged 3.25%, Microsoft rose 6.68% and Amazon was up 6.1%.
Regardless, the market expects Democratic gains in key state capitols – including governorships, Senate and House seats in some of President Donald Trump’s Republican Party’s strongholds – to trigger restrictions on data centres, such as conditional moratoria over water, noise and high electricity demands.
But a higher hurdle to AI build-out may not be entirely bad. In fact, new restrictions may moderate the pace of the build-out and ease investor and shareholder concerns around the enormous capital expenditures by hyperscalers.
The market appears to be betting that while Congress could increase oversight and restrict new incentives for AI data centres, sweeping regulatory legislation would still face a presidential veto.
And if tech firms respond by showing fiscal discipline, investors would get the chance to pick outstanding performers.
Charu Chanana, Singapore-based chief investment strategist at Danish investment bank Saxo, said the US election has accelerated a reassessment of AI that was already under way.
“The sector entered the midterms with elevated valuations, enormous capital expenditure commitments and growing investor concerns about how quickly AI investments will translate into profits,” she said.
Increased regulatory scrutiny by a Democratic Congress could further accelerate investors’ shift from broad AI exposure towards companies with strong cash flows, pricing power and visible returns on investment, she noted.
“Investors should distinguish between three things: the immediate reaction to a political surprise, the policies that could realistically change, and the underlying corporate fundamentals,” Chanana added.
Bernard Yaros, deputy chief US economist at Britain-based research firm Oxford Economics, said risks to the AI build-out lie more with state and local policy, as state governors, utility regulators and zoning boards control rates, incentives, permitting and grid access.
Hence, a worst-case scenario would be a simultaneous tightening of data centre policies in the US South and Midwest, which are the country’s biggest regional drivers for future construction.
“That said, there are strong incentives to avoid policies that would severely disrupt data centre construction,” he added.
Yaros said data centres are increasingly framed as a national security priority and the AI investment cycle has become a meaningful source of economic growth, as these projects bring tax revenue and construction jobs that state and local officials would be reluctant to forgo.
Near-term investment is likely to remain resilient, but restrictions on new projects could become a more meaningful headwind to the AI investment boom from 2028.
Robert St Clair, managing director and head of investment strategy at Temasek-linked Fullerton Fund Management, said that over time, the Democrats may push for less favourable policy supports for certain AI-linked infrastructure and data centres, as well as seek stronger guardrails to avoid any adverse impacts from the technology on society and jobs.
However, US AI-related infrastructure investment is already growing rapidly, with a robust pipeline of projects planned for the years ahead. Hence, it is unclear how significant a headwind any potential policy changes could prove, he said.
If Big Tech dials back its capital borrowing, there will likely be some easing in bond yields as well.
But the major impact on bond yields and possibly Federal Reserve interest rates may come from a divided government that hamstrings federal spending.
Chanana said that while existing tax legislation will not disappear, new tax cuts or major spending packages would become harder for the Trump administration to pass.
Government funding will lapse after Dec 11, before the new Congress starts on Jan 3. A rapid reconciliation Bill focused on defence during the lame-duck session is a near-term risk for the bond market to watch.
On tariffs, Trump will retain substantial executive authority.
Hence, Yaros said, the risk is that his administration will become more aggressive on trade issues.
He added that the US-China trade truce will also be top of mind in the new year. The latest truce is set to expire on Jan 10, which will bring both countries back to the negotiating table.
If they fail to extend the truce, Trump may seek to use the pending Section 301 investigation into overcapacity to impose a fresh round of tariffs on China.
