Artificial intelligence (AI) stocks have soared over the past few years, driving gains in the S&P 500, and the momentum has continued this year — to a certain degree. Many of these players continue to advance, but the path has involved downs as well as ups.
The reason for this choppy performance? Tech giants are spending heavily on an AI infrastructure build-out, and some investors worry that the revenue opportunity may fall short of expectations. If companies find themselves with too much capacity on their hands, earnings might suffer — and stock performance could follow.
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On top of this, general economic uncertainty, from rising inflation to turmoil in Iran, has weighed on the market at certain moments this year. This week, however, one uncertainty lifted: The midterm elections took place, so we now know who will serve in Congress for the second half of President Donald Trump’s term.
The elections resulted in a victory for the Democrats, with the party winning majorities in the Senate and the House of Representatives and gaining the majority of governorships for the first time in 16 years. Stocks advanced in the trading session to follow amid this removal of one uncertainty. Still, one point of uncertainty stands out, and that’s AI. Democrats have expressed caution about the technology in recent months, and with that in mind, you might wonder: Should I really buy AI stocks right now? Let’s find out.
Image source: Getty Images.
The AI story so far
So, first, a quick summary of the recent AI story. In the earliest days of the AI boom, companies trained models that would eventually bring AI into our daily lives. Though training continues, AI has now advanced into the era of real-world use. AI agents today and in the future are carrying out tasks, and AI is being applied across industries and in our homes. This equals a greater need for compute, memory, networking, and more to keep the training and AI use going — particularly since demand has exploded higher.
As a result, big tech companies are pouring investment into the AI build-out, with Amazon, Alphabet, Meta Platforms, and Microsoft pledging to spend more than $700 billion this year alone. This includes the purchase of land, the building of data centers, investment in equipment, and more. Meanwhile, AI labs OpenAI and Anthropic are building more powerful models than ever to drive the development of this technology.
Chip designers and manufacturers, cloud companies, and AI labs have benefited, seeing revenue soar, and those that are publicly traded have seen their shares skyrocket. Though, as I mentioned above, the stock performance momentum has slowed this year.
Democrats may address AI regulation
Now, let’s consider the arrival of the Democratic Party at the helm. Against this backdrop, some investors may worry about buying AI stocks right now. Democrats aim to address AI regulation and could push for restrictions to ensure safety as advanced AI models are developed. Democratic lawmakers could also make it more difficult for companies to build new data centers, since these companies rely on government cooperation for permitting and access to water and electricity, for example. The new governor in Texas, Democrat Gina Hinojosa, even included a moratorium on new data centers in her list of priorities.
So, should you buy AI stocks in such an environment? It’s possible that this shift in Congress could result in guardrails for AI models or a slowdown in the infrastructure build-out, but this doesn’t change the long-term AI story. In fact, the idea of maintaining safety and monitoring the build-out might even alleviate some near-term concerns about AI development and use. Some investors may view AI stocks as a safer bet, with less likelihood of the AI situation spinning out of control.
All of this means that long-term investors might take the opportunity to buy shares of quality AI players on a potential dip. This could prove to be a winning bet for the patient investor as the AI story unfolds over time.
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Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool has a disclosure policy.
