Why Alphabet Stock Popped on Wednesday
Key Points
Alphabet stock rallied in response to the U.S. election results.
Data center construction, while critical for AI adoption, was a hot-button issue with voters.
Any resulting freeze in data center construction could boost Alphabet's free cash flow and supercharge its profits.
Shares of Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) charged higher Wednesday, gaining as much as 5.9%. By the time trading closed, the stock was still up 3.2%.
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The catalyst that sent the artificial intelligence (AI) and cloud provider higher was the results of the U.S. election.
Image source: The Motley Fool.
The big blue wave
Democrats took control of both the House and the Senate, and won several high-profile gubernatorial races. One of the rallying cries among the party faithful was stricter oversight and regulation of data centers, which have become a hot-button issue for some voters. Indeed, following months of public outcry, there were an estimated 50 ballot measures across the country focused on data centers, with many seeking moratoriums and strict accountability for the use of local resources.
Texas, for example, is one of the biggest destinations for data centers over the next couple of years, accounting for 41% of all capacity scheduled to come online in 2028. However, Democrat governor-elect Gina Hinojosa courted voters with the promise of a moratorium on data centers in the state until the legislature examines the effects of these facilities on electricity consumption and prices, water use and availability, and air quality, among other factors.
Texas isn't the only state taking a close look at the impact of data centers. Ohio, Georgia, and Arizona are lined up behind the Lone Star State in terms of data center construction projects, and all three just elected Democrats to the governor's office.
Alphabet has leaned into its cloud and AI services, with significant capital expenditures (capex) to support rising demand. In Q3, Google Cloud revenue soared 103% year over year to $30.7 billion, driven by demand for AI.
Unfortunately, investors focused on Alphabet's negative free cash flow of $9 billion and plans for roughly $200 billion in capex spending in 2026, up from $90 billion last year. This sent the stock down 13% on the day following its report-- the largest single-day decline in Alphabet’s history.
The good news is that any moratorium will likely hurt competition and benefit hyperscalers like Google, which already has a network of data centers. It would also slow the company's capex spending, which would boost profits and cash flow along the way.
And at just 15 times earnings -- near last week's all-time low -- Alphabet stock represents a compelling opportunity for discerning investors.
Danny Vena, CPA has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.