November 9, 2026, (Inside AI) — Wall Street brokerages are pushing back against last week's sharp selloff in AI-related stocks, arguing that the market overreacted to political risks and that the fundamental spending story remains intact. Morgan Stanley, UBS, HSBC, and Jefferies all issued notes on Monday urging clients to look past the rout, which was triggered by fears that a Democrat-controlled Congress could impose strict regulations on data center development.
The selloff, which peaked on November 5, saw the S&P 500 drop more than 4% in a single day, rattling investors who have grown accustomed to AI-driven gains. But the brokerages contend that the political risk is overstated and that upcoming events, including Anthropic's initial public offering and Nvidia's quarterly earnings on November 17, will prove more consequential for the AI trade.
Morgan Stanley said the selloff looked overdone and that the ultimate impact would be a push-out of some projects from 2028 to 2029, rather than a derailing of the capital expenditure story. The brokerage recommended "buying the drop" and remained positive on AI hyperscalers including Amazon.com, Meta Platforms, and Alphabet.
"This has the potential to elongate the AI capex cycle, which has positives including: a smoother supply-demand rebalancing across the data center supply chain, improved credit outlook, and higher lease rates for compute," the analysts said in a note.
The brokerage also pointed to opportunities in semiconductor firms Nvidia and Broadcom, data storage firms Seagate and Western Digital, and optical networking firms Coherent and Lumentum. Nvidia is expected to report a more than 12% rise in data center revenue on a quarterly basis, a figure that could either confirm or challenge the bullish narrative.
The core of the brokerages' argument rests on a simple political calculus: even with Democrats controlling Congress, sweeping regulation of data centers is unlikely to materialize quickly or in extreme form. The reasoning is that data centers are now critical infrastructure, and any legislation would face intense lobbying from the tech industry and pushback from local economies that benefit from construction and tax revenue.
Why The Political Risk May Be Overstated
UBS analysts said markets had become too negative on AI political risk, AI credit risks, and AI spending. They argued that the probability of extreme regulation is low, and that the market has priced in a worst-case scenario that is unlikely to unfold. This view is supported by the historical difficulty of passing broad tech regulation in the U.S., where competing interests and procedural hurdles often dilute or delay legislative efforts.
Jefferies equity analyst Jane Gibbons viewed the November 5 selloff as "reactionary," rather than a fundamental reset. Gibbons wrote in a note that historically, daily S&P 500 declines of more than 4% have been followed by strong forward returns, with the S&P 500 up 11.9% over six months and up more than 20% over 12 months.
"This has the potential to elongate the AI capex cycle, which has positives including: a smoother supply-demand rebalancing across the data center supply chain, improved credit outlook, and higher lease rates for compute," Morgan Stanley analysts said.
The brokerages are not alone in their optimism. HSBC said in a note that it is using last week's correction to increase its exposure to equities again, leaning into tech stocks in the U.S. and Asia. It views Anthropic's IPO as the main catalyst in the coming weeks, a view shared by Morgan Stanley, which also highlighted the IPO as a key event.
The AI trade has been one of the most powerful market themes of the past two years, driven by massive capital expenditures from hyperscalers building out data centers to support generative AI workloads. Any sign of a slowdown in that spending has outsized effects on semiconductor and infrastructure stocks, which have become bellwethers for the broader market.
Still, the brokerages' unified front raises questions about whether they are underestimating the political will for regulation. Data centers consume enormous amounts of electricity and water, and local opposition to new facilities has been growing in several states. A Democrat-controlled Congress could accelerate hearings and propose legislation, even if passage is not guaranteed.
For now, the market's attention is fixed on Nvidia's earnings and Anthropic's IPO. Nvidia's results will provide the most immediate test of whether AI spending remains robust. Anthropic's IPO, expected in the coming weeks, will offer a rare look at the financials of a leading AI lab and could set a valuation benchmark for the sector.
Morgan Stanley's recommendation to buy the dip in hyperscalers and semiconductor firms reflects a belief that the long-term trajectory of AI investment is unchanged. Whether that belief holds will depend on whether the political rhetoric translates into actual policy, and whether Nvidia's numbers meet the high expectations that have been baked into its stock price.
Shamil has a low tolerance for AI that only works in controlled demos. He covers agentic systems and generative AI with the skepticism of someone who has seen too many “revolutionary” tools quietly disappear six months after launch.
