Bank of America names the midterm elections as the "AI Make-or-Break Situation": If the Republicans hold two key positions, there could be further gains ahead.

The Bank of America strategy team stated that the recently volatile artificial intelligence-related stocks will face a new test with the upcoming U.S. midterm elections. In the latest report, the team led by Michael Hartnett specifically pointed out that if the Republican Party, led by Trump, can retain the Senate in the elections on November 3, and if Greg Abbott can win re-election in Texas, the U.S. stock market (especially the AI sector) will soar and enter a "bubbly market" by 2027. The BofA strategists also indicated that, conversely, if the Democrats regain control of the Senate and take Abbott out of office, the stock market could face a "sharp drop" of over 10%. As background, the power balance in the Senate will ultimately determine the political landscape in the U.S. for the next two years, compared to the more easily influenced House of Representatives. Currently, the Republicans hold 53 seats in the Senate, while the remaining 47 seats include 45 Democrats and 2 independent senators who generally align with the Democrats. This year, 35 Senate seats are up for re-election, most of which are held by Republicans. Considering that Vice President Harris can cast a vote in the event of a tie, the Democrats need to secure at least 51 seats to flip control. The latest predictions show that among the 35 seats, the Republicans and Democrats are projected to securely win 14 and 9 seats, respectively. Of the remaining 12 seats, 4 each lean towards Republican and Democratic candidates, while 4 are considered competitive. To regain control of the Senate, the Democrats need to win 8 out of these 12 seats. At the same time, the governor's election in Texas is regarded as a referendum on artificial intelligence data centers. As an energy hub in the U.S., Texas boasts abundant energy, ample land, and loose regulatory policies, positioning it at the center of a national construction boom for data centers. A report by commercial real estate giant JLL indicates that by 2030, the state is expected to surpass Northern Virginia to become the world's largest data center market. Meanwhile, the competition for resources between data centers and local residents is prompting changes in Texas, where the Republican Party has held power for thirty years. In response to various issues, Governor Abbott has recently ordered a suspension of data center connections to the power grid and initiated a statewide review. Democrat candidate Gina Inohosa has promised that she will refuse to approve construction plans for any data center that "does not benefit the people of Texas." BofA strategists believe that Abbott's and Inohosa's campaigns are essentially a referendum on the "trade-off between cost affordability and artificial intelligence data centers." The state currently has 335 data centers already in operation and 247 more in planning. Overall, Hartnett and his team maintain a bullish outlook on risk assets, stating that "the door for bulls to push up risk assets is fully open." Their rationale includes significant corporate profit growth, an increase of approximately $10 trillion in total wealth by 2026, and an expected exceedance of $1 trillion in AI capital expenditures by 2027. Analysts wrote: "Currently, there are only a few real constraints: the bond market (with soaring yields), the election, and the fact that almost all market participants have already bet on an uptrend." The ongoing U.S. earnings season shows that the profit growth rate of S&P 500 constituents is around 32%, compared to a market forecast of only 23%, while 93% of technology stocks have exceeded performance expectations. This article is reproduced from "Caixin News"; Edited by GMTEight: Yan Wencai.