Key Points
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Democrats won control of both the House and Senate in what some commentators are calling the “Big Blue Wave.”
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Some high-profile winners campaigned on moratoriums and stricter data center regulations.
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This might actually benefit the Big Three cloud providers by reducing competition and lowering capex.
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With the 2026 election in the books, early signs Wednesday point to a positive day for investors, with the three major market indexes pushing higher. The price-weighted Dow Jones Industrial Average is up 3% (as of this writing), the broad-based S&P 500 has gained 1.7%, and the tech-heavy Nasdaq Composite is up 1.7%.
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Helping lead the major indexes higher are the “Big Three” cloud providers, Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), and Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG), gaining 7.1%, 7%, and 4.1%, respectively, as I write this.
Given the expected shift in the regulatory environment, it might seem counterintuitive that these tech titans would gain ground, but dig a little deeper, and it’s easy to see why shareholders are optimistic.
Image source: Getty Images.
Democrats win control of Congress
Democrats have won control of both the House and Senate, and some won high-profile gubernatorial races. Many market watchers expect the Blue Wave to lead to tighter controls and stricter regulations for data centers. The proliferation of artificial intelligence (AI) has sparked a data center boom, with spending projected to reach as much as $5.2 trillion by 2030, according to global management consulting firm McKinsey & Company.
That build-out could come to a screeching halt in the wake of the Blue Wave. Many Democrats campaigned on platforms seeking moratoriums on data center construction. Texas, Ohio, Georgia, and Arizona are the top locations for data center capacity coming online in 2028, with Texas accounting for 41% of new construction. Democratic governor-elect Gina Hinojosa of Texas supports a moratorium until the legislature can assess the impact on power, water, and other local resources.
It wasn’t just Democrats. There were an estimated 50 data center-related ballot measures across 10 states, with many seeking to ban new construction or enact strict controls. Many are expected to pass once the final ballot count is complete.
Given the prevailing headwinds, why are the hyperscalers rising today? Amazon, Microsoft, and Alphabet dominate the data center space, accounting for more than half the top 15 data centers by capacity in North America, according to analysis conducted by Axios. Any move to limit new data center construction would increase their dominance by limiting new competition.
Moreover, one of the biggest concerns among big tech investors has been the accelerating capital expenditures (capex) needed to support the data center build-out.
Amazon recently reiterated its 2026 capex outlook at $220 billion while reporting negative free cash flow of $42 billion. Similarly, Alphabet maintained its capex forecast at about $200 billion for the year, while its free cash flow was negative at $9 billion. Microsoft bucked the trend, reducing its capex guidance to about $170 billion, while its free cash flow declined 27% to $18.6 billion, but remained in the plus column. To be clear, nearly all of the additional capex and the decline in free cash flow were used to fund AI and data center construction.
Any moratorium on new construction would likely slow capex spending, boosting profits and cash flow for the tech giants. Furthermore, investors are underestimating the future benefit of today’s spending, according to billionaire hedge fund manager Bill Ackman. The founder of Pershing Square Capital Management addressed the issue in the fund’s quarterly shareholder letter.
We believe it is highly probable that the hyperscalers’ revenue growth will exceed analyst estimates over the next several years. To the extent that does not occur, we believe the hyperscalers will reduce their capital expenditures from current levels. In either scenario, we believe the hyperscalers’ capital intensity will be lower and their free cash flow will be meaningfully higher over the next several years.
Time to buy?
The potential for lower capex spending, higher profits, and improved free cash flow boosted investor sentiment toward the Big Three cloud providers in the wake of the election results. A quick look at their respective valuations helps underscore the opportunity. Microsoft, Amazon, and Alphabet are selling for 29 times, 22 times, and 15 times earnings, respectively — with Alphabet near an all-time low.
Multiples that low, along with the vast opportunity ahead, make these industry leaders a buy — or at least deserving of a look.
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Danny Vena, CPA has positions in Alphabet, Amazon, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool has a disclosure policy.
