"A 'democratic tsunami' threatens the markets, but AI company stocks will make a comeback" — BofA

The Democrats’ success in the U.S. midterm elections could indeed pose a serious obstacle to data center construction and slow the development of AI infrastructure, according to analysts at BofA Global Research. Their note is cited by Seeking Alpha. However, the bank identified a condition under which stocks of companies involved in artificial intelligence would once again “come back into fashion.” Until then, it advises investors to take a closer look at bonds issued by AI companies.

BofA analysts warn that a “Democratic tsunami” in the 2026 U.S. midterm elections could cause serious turmoil in risk asset markets, including stocks of AI-related companies, Seeking Alpha reported.

According to the bank’s assessment, the election results indicate an “electoral shift from populist capitalism to populist socialism.” Analysts believe this will lead to higher taxes and stricter regulations rather than lower ones. In their view, this will create obstacles to corporate profit growth and jeopardize the current uneven consumer boom and the rapid growth in AI capital expenditures that have been supporting the stock market.

BofA notes that “voters want lower living costs, an end to the war, and a slowdown in the expansion of the AI data center network.” This points to increasing political pressure on technology companies regarding the large-scale construction of AI infrastructure. According to BofA Global Research, opposition to the construction of data centers is already emerging at the state level.

According to BofA, there are currently about 1,400 data centers operating in the U.S., with a total capacity of approximately 50 GW. Texas, which has shifted from Republican to Democratic control, accounts for 30% of the data center capacity scheduled for completion by 2028. Given this, BofA called the forecast of $2 trillion in AI capital expenditures by 2028 “slightly overestimated.”

The 2026 midterm elections will mark the “peak of AI company stock concentration” in the stock market and trigger a shift in leading investment trends, according to Seeking Alpha.

Under these circumstances, analysts recommend favoring gold over oil, betting on a decline in bond yields (which causes bond prices to rise), choosing bonds issued by technology companies over their stocks, and in the stock market, selecting consumer sector stocks over energy sector stocks and small-cap stocks over “monopolies.” BofA also recommends taking long positions in European stocks and shares of Chinese technology companies.

If bond yields fall without an economic recession, “AI company stocks will come back into fashion, but the construction of data centers for AI will proceed at a slower pace amid stricter regulations and higher taxes,” BofA predicts.

This article was AI-translated and verified by a human editor