Midterm Special: Is the AI Boom Over Now?

Merz Launches AI Alliance with Five Partner Nations and 18 Measures Against Dependence

At the German government’s Digital Summit in Berlin, Federal Chancellor Friedrich Merz announced the “European Future AI Initiative,” a package of 18 measures. Alongside Germany, the alliance includes France, Finland, Italy, Poland, and Canada. Together, the nations aim to catch up with the leading AI nations, the US and China. According to Merz, the partners share common values and the goal of playing a stronger role in the AI race. Additional countries are expressly welcome. During his trip to Asia the previous week, he had spoken with Japan, Singapore, and Korea about closer cooperation.

At the center of the initiative is the avoidance of unilateral dependencies. “We must at all costs avoid becoming entirely dependent on third parties for this technology,” Merz said. Europe must build its own technological capabilities, diversify supply chains, and exert greater influence on digital governance together with partners. In cooperation with private investors, high-performance AI models are to be developed. Concerns are growing within the German government that along with the technology, Europe could also adopt the rules and values of the US and China.

France and Canada are regarded as key partners, with Mistral and Cohere seen as beacons of hope, particularly for Federal Minister for Digital Affairs Karsten Wildberger. While France was the center of attention at last year’s summit, the focus this time was on Canada. The merger of Cohere with Germany’s Aleph Alpha is close to closing, with regulatory approval still pending. The governments reportedly played a major role in the negotiations.

In the wake of the de facto takeover, the Schwarz Group announced it would invest 500 million euros in the Canadian company. It is leading a financing round that includes Nvidia, among others. The target valuation is around 23 billion euros, nearly two billion euros above that of Mistral. Both providers cater to enterprises looking to implement sovereign AI solutions. → Handelsblatt AI Briefing

Synthszr Take: The only concrete figure from this summit comes from the parent company of Lidl and Kaufland. The Schwarz Group’s 500 million euros for Cohere is a hard number; the 18 measures are not. An alliance of six nations consumes ministerial time for coordination meetings and declarations. That time is missing for the unspectacular levers: capital markets union, computing capacity, electricity prices. Mistral and Cohere gain political tailwinds. The Mittelstand, expected to deploy sovereign AI, receives an initiative instead of a grant approval.

Midterm Quake: Nasdaq 100 Loses Record $2.3 Trillion

The Nasdaq Composite plunged 5.5 percent on Thursday, shedding roughly $2.5 trillion in market value according to Dow Jones data. The tech-heavy index closed more than 10 percent below its recent peak, entering correction territory. The Philadelphia Semiconductor Index, which tracks the 30 largest semiconductor companies, tumbled more than 12 percent. Other major US indices also recorded their weakest trading sessions since 2025. The selloff was triggered by the Democratic victory in the midterms, winning both the Senate and the House of Representatives on Tuesday. As a result, they will control Congress for the remainder of Donald Trump’s term. Investors now fear stricter regulations on data center construction and, consequently, declining demand for AI chips and related infrastructure.

Companies heavily reliant on the data center business were hit especially hard. Nvidia dropped more than 9 percent, wiping out over $400 billion in market value. AMD and Micron each fell more than 17 percent, while Intel declined 10.3 percent. Memory chip manufacturer SanDisk crashed more than 22 percent. Musk-led companies SpaceX and Tesla lost 8 and nearly 11 percent, respectively. In Europe, chipmaker Infineon sank more than 8.5 percent, and equipment manufacturer ASML slipped 6.5 percent.

The selloff continued in Asia on Friday. In Seoul, the Kospi plummeted more than 8.5 percent, triggering a circuit breaker that temporarily halted trading. SK Hynix fell between 8 and more than 11.5 percent depending on the time of trading, and Samsung Electronics slid between 7 and nearly 10 percent. LG Innotek dropped 10 percent, while LG Display fell 7.7 percent. In Tokyo, the Nikkei 225 was down 6 percent in early trading. Test equipment maker Advantest plunged 12.2 percent, and SoftBank Group tumbled 11.6 percent. Memory chip maker Kioxia lost between nearly 10 and 12.6 percent, Tokyo Electron dropped between 7.3 and 9.5 percent, and Renesas Electronics fell 7.5 percent.

In Taiwan, the Taiex dropped more than 8.3 percent. TSMC slid between 8.5 and 9.6 percent. Hon Hai Precision Industry, better known as Foxconn, lost 9.4 percent, while Foxconn Technology shed 9.1 percent. In China, the tech-heavy STAR Market and the ChiNext Artificial Intelligence Index each slipped more than 4 percent. → CNBC, BBC

Synthszr Take: Demand for AI chips hasn’t changed since Tuesday, but the majority in Congress has. Yet SanDisk still plunged more than 22 percent. Valuations across the chip industry assumed that every planned data center would be built as soon as capital was deployed. Now, construction hinges on permits whose timelines cannot be modeled. This shifts bargaining power to operators that already own sites and grid connections. Suppliers depending on new construction sites are the first to pay the risk premium: memory manufacturers just took the hit.

Investors Doubt Anthropic’s $1.5 Trillion IPO

Major investors doubt that Anthropic will be able to complete its initial public offering at the expected $1.5 trillion valuation, according to an exclusive report by the Wall Street Journal. The skepticism was sparked by a sharp selloff across equity markets. According to these investors, the AI company might be forced to accept a significantly lower valuation than previously anticipated. The paper describes the planned listing as one of the sector’s major IPOs. The report was authored by WSJ reporters Corrie Driebusch, Berber Jin, Kate Clark, and Anissa Gardizy. → Wall Street Journal

Synthszr Take: For Anthropic, a $1.5 trillion valuation is above all a promise to its workforce. Employees with stock options have staked their life plans against that exact number. If the issue price falls significantly short, their net worth shrinks before it becomes liquid. This hits Anthropic where it hurts most: retaining researchers whom OpenAI, Google, and Meta can poach at any moment. A five percent market decline in a single day turns into a recruiting problem in San Francisco.

Data Centers: OpenAI Offers Communities a Compact

In the US midterms, voters rejected new data centers almost everywhere they appeared on the ballot. In more than 30 municipalities across nine states, voters approved moratoriums, bans, and other restrictions, partly in direct response to ongoing construction projects. Two days after the election, OpenAI announced a “National Community Compact.” In it, the company pledges to curb non-disclosure agreements with public officials. For future data centers that OpenAI owns and operates itself, it intends to cover electricity and energy infrastructure costs. The framework also calls for greater transparency regarding construction plans and noise levels, site-specific water usage plans, as well as investments in childcare, education, healthcare, and transportation. → Gizmodo, Semafor, Axios

Synthszr Take: During the fracking boom, the industry lost in Denton and won in Austin: Texas overrode local municipal bans via state legislation. That exit route is closed for data centers, as the incoming governors of Texas and Georgia are themselves calling for a construction pause. Community consent must now be bought town by town. OpenAI’s Compact is the initial rate card for that, listing electricity costs and childcare as line items. Banks already treat local opposition as a credit risk and will factor this list into every site assessment.

Texas Elects Data Center Critic Hinojosa

Democrat Gina Hinojosa has won the gubernatorial race in Texas. During her campaign, she pledged a statewide moratorium on new data centers to remain in effect until the legislature in Austin enacts new regulations. Democrats won or led in all statewide races in Texas for the first time in three decades. Hinojosa will be sworn in on January 19. Nationally, Democrats will take control of both chambers of Congress. Pushback against new data centers also played a role in races in Ohio and Georgia. Top Republican politicians blamed the war with Iran and surging gas prices for the defeat.

Texas was previously regarded as the premier location for data center expansion in the US, driven by abundant land, a deregulated power market with its own grid, direct access to natural gas, and business-friendly tax policies. Analysts at real estate firm JLL projected Texas to surpass Virginia as the world’s largest data center market by 2030. Amazon, Google, Meta, Microsoft, OpenAI, and Vantage are constructing major facilities there. Recently, public discontent has grown over air quality, noise, and mounting electricity and water bills. Polls show a majority of Texans oppose data centers in their neighborhoods. In September, outgoing Republican Governor Greg Abbott had already suspended new approvals until the grid operator reviewed pending applications, affecting nearly a fifth of the statewide pipeline of 253 gigawatts. → CNBC, The Daily Upside, nationthailand, International Business Times, SiliconANGLE, Investopedia, Quartz, Australian Financial Review

Synthszr Take: Hinojosa was elected by households whose rising power and water bills subsidize this expansion. Her moratorium is primarily leverage to rewrite that bill. Grid expansion costs, water rights, and tax breaks are being shifted back onto operators. Microsoft, Amazon, and Alphabet can absorb those costs. In fact, their shares rose because slowed capital expenditures ease balance sheets. The situation becomes precarious for pure wholesale capacity providers like CoreWeave, whose business model relies on cheap Texan megawatts.

Google Invests $17 Billion in Wyoming and Brings Its Own Gas Power Plant

According to Quartz, Google has announced its first data center in Wyoming, investing $17 billion in Laramie County. Partners in the project include Tallgrass Energy, Black Hills Energy, American Electric Power, and Related Digital. Power will be supplied by a 702-megawatt facility from AEP, utilizing natural gas fuel cells provided by Bloom Energy. According to Google, Carbon Capture and Storage will capture the bulk of emissions at Tallgrass’s Eastern Wyoming Sequestration Hub; the company did not disclose the precise percentage, according to The Next Web. Google has agreed to absorb all electricity costs and infrastructure upgrades required by the expansion and will cool the facility with air rather than water. → Quartz

Synthszr Take: In Laramie County, Google is covering full electricity costs, financing grid upgrades, and foregoing cooling water. This eliminates the three primary arguments citizen groups have used elsewhere to stop data centers at the ballot box. Wyoming provides gas and a state government that places few hurdles in the way. Google delivers the pledge that no household will foot the bill. This package will become the baseline for future site negotiations. Microsoft, Meta, and Amazon will have to match these terms, increasing the cost of every megawatt before it even connects to the grid.

Alberto Romero: AI Industry Considers Midterm Voters' Anger a Mere PR Problem

In his newsletter The Algorithmic Bridge, Alberto Romero attributes the decisive Democratic victory in the US midterms to growing public opposition to AI and data centers. He argues that polls had indicated this hostility for years, and the election simply confirmed it. The industry has responded by calling for an immediate overhaul of its communication strategy. Romero considers this interpretation patronizing and incorrect. The backlash, he contends, is directed at the very future the industry portrays: job insecurity, a degraded internet, cognitive decline, and existential threats. He notes that disapproval is stronger in the US than in other nations, and that many Americans use AI daily while simultaneously demanding strict regulation of the sector. → Alberto Romero from The Algorithmic Bridge

Synthszr Take: You cannot rebrand a physical data center. It stands next to the cornfield, draws power from the neighborhood grid, and shows up on the next utility bill. The fact that Romero considers the water debate overblown changes little, because elections are won locally. The fallout directly hits the industry’s capacity planning: permits, grid connections, and zoning laws reside with local officials who just learned what wins elections. A bigger PR budget won’t buy a single additional megawatt.

Big Tech Plans $720 Billion for AI Infrastructure, Returns Fail to Materialize

According to The Verge, Amazon, Microsoft, Alphabet, and Meta plan to spend at least $720 billion on CapEx this year alone, the majority earmarked for AI infrastructure. On top of that, there are capital expenditure commitments of at least one trillion dollars for the coming years. Amazon CEO Andy Jassy announced “significantly more” for 2027 than the $220 billion the company is investing this year. Alphabet is planning $195 to $205 billion and, according to CFO Anat Ashkenazi, intends to increase spending “significantly” in 2027. At the same time, ad revenue growth for Google Search slowed to 12 percent in the third quarter, down from 17 percent in the prior-year period. → The Verge

Synthszr Take: Google is investing up to $205 billion to transition search queries into a format that generates less advertising revenue per query. Rising usage alongside falling revenue per query was admitted by Schindler himself on the earnings call. Zuckerberg frames the same bet more openly: Muse only makes financial sense once compute gets cheaper. Hyperscalers are banking on their data centers reducing unit costs faster than they inflate balance sheets. No one proved that cost curve in the third quarter.

Meta Expects Tougher Permitting for New US Data Centers Following Midterms

Meta President Dina Powell McCormick anticipates that new data center projects in the US will be considerably harder to push through after the midterms. Speaking at the WSJ Tech Conference, according to the Wall Street Journal, she forecast “a lot more review” for new developments. Expanding existing facilities will be simpler, she noted, because host communities have witnessed the local economic benefits for years. According to Powell McCormick, all major cloud providers are evaluating international locations, including Meta. This affects ongoing projects such as Hyperion in Louisiana, Prometheus in Ohio, and a joint development with BlackRock in Texas—where the incoming governor, like his counterpart in Ohio, has called for a conditional moratorium on new data centers. Meta is planning capital expenditures of up to $145 billion this year. → Quartz

Synthszr Take: The pipeline industry learned this dynamic long ago: local opposition doesn’t need to ban projects outright; regulatory delay is enough. The same dynamic is unfolding in data centers, with $260 billion in canceled projects already on the table. This is creating a new scarcity: permitted sites with grid capacity and an accommodating host community are becoming the rarest resource, far more valuable than the next chip allocation. Meta holds several of these sites; neoclouds without existing footprints will have to look overseas or wait.

Musk’s $450 Million Bet on Republicans Fails; Tesla and SpaceX Face Scrutiny

Elon Musk poured roughly $450 million into Republican candidates, according to the Los Angeles Times, leaving him on the losing side following the Democratic landslide in the midterms. A substantial portion of the funds went to Texas, where SpaceX and Tesla are headquartered. There, Governor Greg Abbott lost to Democrat Gina Hinojosa. Abbott had already instituted a pause on new data center construction; under Hinojosa, the paper notes, significantly stricter conditions could follow. This primarily threatens the data center segment, which generated $7.6 billion in revenue for SpaceX in the third quarter following its acquisition of xAI. → Los Angeles Times

Synthszr Take: A data center requires electricity, water, and permits—and in Texas, Gina Hinojosa now holds the final say on the latter. Musk wagered $450 million on her opponent, alienating the state leadership upon which his new core business relies. The $7.6 billion in quarterly data center revenue can only expand by adding new facilities. Any governor welcomes a semiconductor plant like Terafab; for the server halls next door, Musk will now pay in delays and regulatory mandates.