AI Trade at Risk From US Voter Ire Over Buildout, Barclays Says

(Bloomberg) -- The relentless buildout of artificial intelligence infrastructure is drawing bipartisan backlash, which could introduce political risk to the market's beloved trade ahead of the US midterm election.

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Barclays Plc's equities tactical strategies team Tuesday joined a growing chorus of Wall Street strategists warning that markets are potentially overlooking risks to the AI trade tied to the November election. Voter backlash will drive increased scrutiny of AI infrastructure with policy pressure concentrated around data center regulation, strategists including Jenny Yang and Alex Altmann wrote in a note to clients.

"The data-center buildout is turning AI from an abstract tech story into a tangible cost-of-living issue," the strategists wrote. "Even for voters with limited direct exposure to AI, higher electricity bills, pressure on water supplies, and industrial facilities being built in their communities make the issue highly relevant."

Analysts from Evercore ISI and BCA Research have also flagged the construction boom of power-hungry data centers across the country as a touchy election issue with voters of both major political parties, who are growing weary over rising utility bills.

Bank of America Corp., on the other hand, sees a strong showing by Republicans in the midterms as a catalyst for US equities to "rip."

Unlike BofA, the Barclays team sees no "incremental positive catalyst" for the AI trade, regardless of the outcome, noting that market performance leading into midterms is historically subdued.

"The clearest expression of midterm risk" is the downside in the bank's custom AI Data Center Index, which currently has a basket of more than 40 stocks including heavy-weight names like Super Micro Computer Inc., Arista Networks Inc. and Microsoft Corp., they wrote.

"Investors should not assume that our current state, where rapid AI adoption and a permissive political environment are allowed to coexist, will continue indefinitely," the strategists said.

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