Tech stock rotation: Data center construction slowdown fears weigh on semiconductors as cloud giants rise against the trend

Why did tech stocks diverge so sharply?

The semiconductor sector fell 3% on the day, having dropped roughly 5% intraday, and underperformed QQQ by about 4 percentage points. The report attributed the move to investors’ response to the Texas election results and a possible slowdown in data center construction.
Mining companies and AI power and infrastructure stocks with significant Texas exposure were among the biggest decliners: HUT fell 23%, VST fell 14% and Vertiv fell 13%. Amazon and Microsoft each rose 6%, while Alphabet gained 3%. The market believes cloud giants that already have more capacity could consequently become more valuable.
Memory and hard-drive stocks fell 5%–8%. The report said expectations of slower construction shifted investors’ assessment of supply and demand for the products toward more abundant supply relative to demand.

Estimates of the capacity at risk vary in scope across institutions: SemiAnalysis said 16.7 gigawatts of capacity planned in Texas for 2028 were at risk; Jefferies estimated that about 13.3 gigawatts of announced Texas projects were at risk under Hinojosa’s moratorium.
The report said about 20% of hyperscaler capital spending in 2027 is allocated to early construction activities and could be affected; UBS estimated that 30% of new capacity in 2028 was at risk.
The opposing view notes that Hinojosa advocates tighter regulation of data centers, not a blanket shutdown; she is also constrained by Texas’s Republican-controlled legislature, and most construction projects are already under way. The report’s author therefore concluded that additional approvals and concessions would slow or delay projects, but construction would continue.

Bulls believe that the harder it becomes to build new projects, the scarcer already energized computing capacity becomes, giving companies with ready capacity greater pricing power and a competitive advantage. The report said hyperscalers also have the most approved capacity and capacity under construction.
Another view is that if capital spending levels off and memory prices fall, free cash flow could improve as the value of existing capacity rises. Some investors also believe companies could bring spending forward to 2027 to secure power and permits.
But costs will not necessarily only fall: the report said 34 of the 36 winning gubernatorial candidates support protections for electricity ratepayers, which could leave cloud giants bearing grid costs; union labor, water supply and conditions attached to tax breaks could also raise construction costs.

Consumer and software stocks previously weighed down by concerns about disruption from AI agents rebounded: Netflix rose 5% and DoorDash gained 8%; a basket of consumer AI agent winners relative to losers fell 6%.
The report described moves in macro assets as a “peace trade”: oil fell 8% to below 90 dollars, the yield on 10-year U.S. Treasuries declined 5 basis points, and gold rose about 3% to regain the level above 4000 dollars. Meanwhile, the market-implied probability of a Federal Reserve rate hike in December was about 79%, little changed from roughly 77% on Tuesday.