Speed Bumps

This week at the Global Financial Leaders' Investment Summit in Hong Kong, representatives from the likes of Goldman Sachs, Blackstone, and Bridgewater discussed what to make of the "AI trade." TPG founder Jim Coulter had the most insightful answer: "I don't know."¹

The market doesn't know either, which is why returns for the S&P 500 have zigzagged dramatically between positive and negative throughout the week. After election day, futures dove 1.4% overnight but the S&P 500 rebounded 1.6% Wednesday. Then Thursday's reckoning came, and the S&P 500 fell 4.4%.

Thursday's drop seems to reflect a realization of the political backlash against AI data centers that materialized in Tuesday's election. Voters sided against data centers in 40 of 41 local ballot measures across 10 states.² Democrats also won governors' races in Texas, Georgia, and Ohio--all major data center states.³ People hate data centers so much OpenAI is considering rebranding them to "AI compute campuses."

Data center construction has been a big economic driver for the last couple of years, as well as a boon to the earnings of component suppliers. However, as Deutsche Bank economist Brett Ryan told Bloomberg, "If some of these moratoriums or regulatory pressures slow some of this buildout, it almost prevents you from blowing too big of a bubble."³ Investors were already nervous about an AI capex bubble, so these political speed bumps could allow for a more efficient and effective allocation of capital.

As I wrote earlier this year, we're still in the early innings of this AI transition. And when the future is genuinely uncertain, the most prudent response isn't a bold bet or panic selling--it's a diversified portfolio. Own the companies building the AI infrastructure. Own the sectors utilizing AI technology. And own the ones that look boring and non-cyclical. Because in a world this unpredictable, the best hedge isn't a prediction--it's diversification.

Sources:

  1. This Time Feels Different (Financial Times)

  2. Data center-related ballot measures, 2026 (Ballotpedia)

  3. US Data-Center Backlash May Lower Odds of AI Investment Bust (Bloomberg)