Five tech giants gain $750 bln post-midterms. JPMorgan sees the rally broadening.

The five largest U.S. tech companies added $750 billion in combined market value in Wednesday trading after Democrats swept the midterm elections, Reuters reported. Investors are betting that potential restrictions on new data center construction could strengthen the companies’ grip on scarce computing capacity and ease pressure on their cash flows. JPMorgan's trading desk expects stocks to rebound after weeks of selling and the rally to spread beyond tech, Bloomberg reported.

Most Magnificent Seven stocks rose on Wednesday as the U.S. midterm election results came in. Amazon jumped 7.2% to a three-month high. Meta Platforms climbed more than 1%, Alphabet 3.8%, and Microsoft 6.6%. Apple shares surged around 7% to a record $353 apiece. The company has avoided the massive AI spending of its tech peers but is feeling the effects of a sharp rise in memory chip prices fueled by the AI boom.

Big Tech stocks led the rally after days of selling driven by concerns about soaring AI costs. If the gains hold, the five companies will add more than $750 billion in combined market value, Reuters reported.

The rally marked a sharp reversal for cloud giants hit hard by the recent selloffs. Their quarterly results showed how the race to build AI infrastructure is turning companies that once held large cash reserves and carried little debt into heavy spenders that rely on borrowing.

JPMorgan’s US Market Intelligence team remains bullish on tech stocks in the near term and expects the rally to broaden. It sees the selloff in tech stocks in late October and early November as an opening for a near-term rebound, even as investors grow more selective about potential winners and losers in the AI race.

“We would not abandon the Tech trade and would play for a tactical rebound,” the team led by Andrew Tyler wrote in a note cited by Bloomberg. They favor a barbell strategy that combines tech and cyclical stocks, with a greater weighting in cyclicals.

Investors are weighing the implications of Democratic control of Congress and the outlook for AI infrastructure spending. Helping fuel Tuesday’s after-hours selloff was Texas Governor-elect Gina Hinojosa’s proposal for an immediate moratorium on new data center construction until additional regulations are in place. JPMorgan’s trading desk said concerns about a potential policy shift in Texas may be overblown given how many other states can accommodate data centers. The desk added that new rules would still allow some construction to go ahead.

Still, JPMorgan team stopped short of giving the AI trade an all-clear. Before adding to their exposure again, investors are looking for crowded positions to unwind, hyperscalers to confirm their capex plans, semiconductor and memory chip makers to report strong earnings, and capital markets activity to pick up, Bloomberg reported.

JPMorgan expects the rally to extend to other sectors. Among cyclicals, the team favors consumer and financial stocks, especially if the yield curve continues to steepen.