AI, defense stocks slide as clean energy shares rally after Democrats take control of Congress

Data center stocks slid in premarket trading on Wednesday, while clean-energy ​shares rallied after Democrats seized control of Congress, prompting investors to reposition for tougher scrutiny of the AI boom and a shift in policy priorities.

US stocks react to Democrats winning control of Congress, with gains and losses across key industries. (Representational Image) (Pixabay)The Democratic sweep, which included victories in traditional Republican strongholds and key data-center hubs Texas and Georgia, will usher in divided government in Washington and raises the prospect of greater congressional oversight of industries that benefited from Republican control.

Market reaction rippled across AI-linked stocks, renewables, healthcare companies, defense contractors and prison operators. Data center operators lost ground, with Core ​Scientific down 3.5% and Iren down 3.6%. Applied Digital and CoreWeave fell 2.4% and 3.8%, respectively.

The data center boom sparked public backlash this ​year, raising concerns that tighter Democratic oversight could slow investment just as investors grow wary of soaring AI spending and uncertain ⁠returns. Though analysts doubt any legislation could meaningfully stall data center construction, a Democratic-led Congress increases prospects of more hearings and investigations related to the AI ​buildout.

"AI has been an enormous engine powering the US economy, so any curbs on its future development could threaten to put the brakes on growth," said ​Kit Rees, investment strategist at Quilter. A Democratic sweep could bolster expectations for continued federal support for clean energy while speeding approvals for energy and infrastructure projects.

Democrats plan to scrutinize the Trump administration's efforts to roll back emissions rules and could use the Congressional Review Act to overturn regulations that make it easier to sell gas-powered trucks and SUVs. Shares of ​solar maker First Solar gained 7%, residential solar installer Sunrun added 6.1% and inverter maker Enphase Energy was up 3.6%.

Clean-power developer NextEra Energy inched ​2.3% higher. "The more that oil and gas prices rise, the bigger the incentive, the bigger the economic incentive to roll out clean energy," said Paul Jackson, global market strategist for EMEA ‌at Invesco.

Europe's ⁠Vestas and Orsted rose 4.3% and 6.4%, respectively, while Portugal's EDP Renewables was up 2.3%. Shares of Elon Musk's rocket and space technology company SpaceX dropped 5.2%, while EV maker Tesla was down 4.9%.

"It puts into doubt a potential merger between SpaceX and Tesla. While Congress cannot stop a merger, they could slow it down via extra scrutiny," said Kathleen Brooks, research director at XTB. "Musk had poured hundreds of millions into the Republican Party ahead of these elections...we could see ​stocks linked to Musk struggle now ​that his political enemies have won ⁠back control of Congress." Trump Media & Technology Group, majority-owned by Trump, dropped 7.7%.

Defense contractors such as Northrop Grumman fell 2.7%, while RTX, Lockheed Martin and L3Harris lost over 2% each. The sector had been underpinned by expectations that the $1.5-trillion budget request by Trump would ​not face headwinds in a Republican-dominated Congress.

However, in a Democrat-led Congress, analysts project the funding could fall short of expectations.