Morning, everyone! I was out in the mountains this weekend for my bachelor party. Robinhood notifications indicate it was a rough Friday. I wrote this post prior to that.

While it may not feel as pressing given the events over the weekend, this particular bear scenario has been on my mind, and I believe it is only a matter of time before we have to deal with it.

File this away for later. Don’t let it surprise you when it happens.

One Last Bear Case

For a moment, let’s ignore the bear case concerning the SpaceX IPO. It isn’t that the case isn’t worth listening to. It is. But, for now, financial markets are shrugging it off as it has shrugged off literally everything else: incrementally hawkish Fed, the war in Iran, rising inflation, higher yields, Mercury in retrograde, Venus drinking a Gatorade, etc…

Well, the market isn’t often stupid, nor is it complacent.

It is simply following earnings.

Just like the markets, all-time highs. And it isn’t just tech. Margins are expanding elsewhere, which bodes well for earnings across the board.

So, since earnings are all that matter and nothing has yet to dampen their outlook, what can? I can point to only one source, and it would likely only be temporary: the midterms.

Data centers have become a political issue.

One I believe the Democrats could champion to further their chances of gaining congressional seats.

Maine recently enacted a temporary moratorium on the construction of data centers in the state. The fact that states have taken notice in such a material way is clearly a precursor to this becoming a national issue in short order.

Remember the Trump basket and the Kamala basket? As markets priced in their odds of winning, one basket would rise and the other would fall. When the midterms manage to capture Wall Street’s attention, I could see something similar happening: Democrats’ odds of flipping a house go up; AI-basket goes down.

That said, I believe any midterm rhetoric aimed at data centers would be all bark and no bite.

I neglected to mention that Maine’s governor vetoed that bill. It’s pretty easy to understand why.

It is no secret that the AI capex buildout is a massive economic boon for anyone involved. And in a time where there are few other economic boons to vie for – and by “few other” I mean “none whatsoever” – the governor decided it was in the best economic interest of his state, and perhaps in the best interest of his donors and re-election chances, to veto the bill. 

TLDR; I expect anti-AI rhetoric around the midterms to create an opportunity, not an enduring threat.

Monday

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Tuesday

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Wednesday

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Thursday

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Friday

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