Key Takeaways
- Democrats won control of the House and Senate in Tuesday’s midterms, and state results point to more limits on building data centers but fewer outright bans.
- Tighter rules that slow the build-out would help Amazon, Alphabet, Meta and Microsoft shareholders, because less capex while capacity stays scarce repairs free cash flow without hurting demand.
- Free cash flow needs the repair: Amazon’s was a $34.8 billion outflow in the September quarter, and Meta’s turned negative.
- The companies still set their own budgets, and Alphabet’s capex keeps climbing, so the 2027 spending plans due early next year are what to watch.
Democrats won the House and the Senate on Tuesday, and one investor thinks that could be the best news in a while for shareholders of Amazon (AMZN), Alphabet (GOOG), Meta Platforms (META) and Microsoft (MSFT).
That sounds backward. Tighter rules on data centers should mean a slower AI build-out, and AI stocks have been priced for a faster one.
But the investor who posts as BuccoCapital on X thinks the slowdown is good for them: “Dem sweep is bullish AI because everyone spends less on capex and diffusion has time to catch up to the buildout. Labs can’t miss on revenue bc they are compute constrained.”
Another user pushed back that the market’s earnings growth leans on chipmakers like Nvidia and Micron, and he waved that off. On the big cloud spenders, he wrote: “The hypers would be good businesses again.”
Ironically, I think he’s right.
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Incumbents get the edge
Jim Cramer, host of CNBC’s Mad Money, went through the state-by-state results on data centers and found “more restrictions being put on building them but fewer outright bans.” He thinks that “would seem to favor incumbents PLUS spending within means as opposed to endless buildouts.”
That’s the setup the four giants should want. They already run the capacity, and new rules make everyone’s next site slower to build, theirs included. With capacity that tight, demand holds up: Amazon’s management says the capacity it adds is sold as soon as it’s installed.
And the market already rewards restraint. On Monday’s Mad Money, Cramer pointed out that “the only hyperscalers that did dial back its CapEx plans, Microsoft, saw the best reaction from the market for doing so.” (Its stock still fell, he added, just by less than the rest.)
Shareholders have paid for the build-out in cash
Why would less building be good news? Because free cash flow has paid for it. Amazon’s went from $17.8 billion in the last quarter of 2024 to an outflow in each of the last three quarters, including $34.8 billion in the quarter to September:
That cash went out while demand kept climbing: AWS grew 39% last quarter, and its backlog rose to $578 billion. Analysts don’t expect Amazon’s free cash flow to turn positive for a full year until 2028.
Voters don’t sign Alphabet’s checks
Of course, the companies set their own capex budgets, and Alphabet’s is still climbing fast. Its quarterly capex has risen every quarter for two years:
The $51.4 billion it spent in the September quarter is about 3.6x what it spent in the last quarter of 2024, and Alphabet has guided to a significant increase for 2027. Larry Page has said he’d rather go bankrupt than lose the AI race. A data center blocked in one state can simply go to another state, or abroad.
Meta could use a referee
Still, boards watch their stock prices, and rules that slow every new site give them cover to do what the market already rewards. Meta shows why that matters. Its free cash flow stayed above $9 billion every quarter from late 2024 through 2025. Then it fell to $1.75 billion in the June quarter and a $1.16 billion outflow in September:
Frankly, a build-out that’s slower and sold out is the best version of these businesses. If new rules do the slowing, shareholders get their cash flow back without any CEO having to blink first.
It’s early, though. The new Congress won’t be seated until January, and the four will give their 2027 capex plans with fourth-quarter results early next year. Those plans will show us whether anyone actually eases off.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
