Dip Buyers Emerge for Tech Stocks as Traders Look Past Midterms
(Bloomberg) — With the US midterms effectively out of the way, investors have more clarity about future policy. For the technology sector, it’s a clearing event that switches the focus back to fundamentals.
Most Read from Bloomberg
The vote delivered what markets have been pricing for the past few months: Democrats have taken control of Congress and the Senate. While Democrats are known to be less enthusiastic about the AI buildout, effective changes in Washington that slow things down may not happen anytime soon. Barclays Plc head of European and APAC equity strategy Emmanuel Cau said concerns about nationwide data center bans are far-fetched, given the President Donald Trump’s support for AI.
The Democratic win in Texas might fuel some angst, as the state is projected to account for about 30% of US data center market share by 2028, according to a Bloom Energy estimate. After opening down 2.4%, Nasdaq 100 futures have erased most losses, a sign that dip buyers are alive.
Of course, the midterms were only one of the issues confronting the tech sector. Worries about overspending on AI, plunging cash flows and future rewards for massive investment haven’t vanished overnight. But, with crowded positioning nearly washed out, the asymmetry of returns is now leaning toward positive.
A relief rally can’t be excluded, especially with seasonality typically in favor of stocks through November and December. The Nasdaq 100 is now testing its key support on the 200-day moving average while flirting with oversold levels after a drastic cut to positioning. That has proved the basis of a bounce more often than not over the past few years.
Deutsche Bank AG strategists including Parag Thatte upgraded tech at the end of last week, after the sector retraced to the bottom line of a decade-long relative trend channel. They noted that positioning on theses stocks has fallen sharply and is now in line with a large deceleration in growth to around 10%, from around 47% in the third quarter and the 36% consensus expects by the end of next year.
“In our reading, positioning is now factoring in significant risks around AI-demand as well as potential regulation and scrutiny post the US midterm elections,” the team said. “For example, we would point out that in the run-up to the Presidential election in 2024, large-cap equity positioning was also at similar levels as now but was largely in line with earnings growth then, not well-below as is the case now.”
Despite these concerns and negative price reactions to earnings, the latest updates suggest that near-term demand remains robust. Amazon.com Inc.’s cloud computing arm AWS, while missing more bullish investor expectations, still grew by 39% in the third quarter. Microsoft Corp.’s Azure revenue increased by nearly 50%, and Alphabet Inc.’s Google Cloud sales more than doubled.
The same goes for hardware makers, with ASML Holding NV saying current supply capacity planned for the next two years may not be able to meet customer requirements.
The dot-com bubble was about excess capacity chasing insufficient demand, but the AI boom so far looks to be the opposite, with abundant demand chasing scarce compute, Bank of America Corp. analysts including Vivek Arya said. With chipmakers already “valued as if the cycle is ending,” the analysts said they are “watchful but bullish” on participants in the AI buildout spanning from chipmakers to manufacturers of chipmaking and networking gear.
While there’s good reason for some relief, tech does not have the all clear, and the market has been pricing that too. AI risk is at the forefront of investor worries and Nasdaq 100 implied volatility has risen sharply relative to the Russell 2000. That’s a sharp contrast to the summer momentum selloff, when semiconductors led the rush from risk and the vol surge. While it’s off its highs, implied vol for hyperscalers has increased, according to Goldman Sachs Group Inc.
“Markets are still pricing elevated event risk around the next Nvidia Corp. results, with the implied S&P 500 move comparable to that around the US midterm elections,” said Goldman strategists including Christian Mueller-Glissmann.
Key investor concerns are still focused on credit risks among neocloud companies and slowing top-line growth at frontier AI labs. Financing has again become a key topic this week as Oracle Corp. completed a debt and equity offering and Meta Platforms Inc. seeks to issue new bonds.
Given how much of this financing will be tied to the computing capacity that will eventually power Anthropic and OpenAI’s AI models, the other question is whether these AI labs can grow fast enough to validate all the spending and borrowing. Anthropic’s third-quarter revenue rose more than 10 times from a year earlier, according to its latest filing, yet that number still initially disappointed traders.
“Four years of booming AI investment have sent earnings expectations soaring,” said BlackRock Inc. strategists including Jean Boivin and Wei Li. “Investors now want evidence that spending can deliver returns, especially as rising capital expenditures squeeze free cash flow, pushing it into negative territory for some firms.”
–With assistance from Jan-Patrick Barnert.
Most Read from Bloomberg Businessweek
©2026 Bloomberg L.P.