AI Investment Spillover Fuels Industrial Stocks, but Data Center Construction Faces Political Backlash
A wave of investment in artificial intelligence is having far-reaching effects on the broader economy. According to Wells Fargo, the AI investment boom has begun to spill over into other sectors, with industrial stocks and capital goods companies showing a high correlation with semiconductors and cloud services.
The report from Wells Fargo strategist Ohsung Kwon points out that approximately 40 large-scale data centers are currently under construction across the United States, with over 100 more in the planning stages. As construction continues to expand, capital goods companies such as Caterpillar (CAT-US) are seeing a surge in orders.
Caterpillar's second-quarter earnings report showed that revenue surpassed $20 billion for the first time, driven by demand for power generation equipment and construction machinery from AI data center builds. However, elevated share prices have attracted short sellers, including 'Big Short' investor Michael Burry, who has initiated a short position in Caterpillar.
The biggest risk to data center construction is political backlash, with 71% of Americans opposing the construction of AI data centers in their local area and 77% concerned about rising electricity prices. In July, New York State signed a one-year moratorium on large-scale AI data centers, and at least 12 gubernatorial candidates have voiced support for pausing data center construction.