Wall Street Warning: AI Populist Backlash Could Threaten Tech Stock Rally
N.R. Finch
Eight AI-infrastructure stocks account for nearly two-thirds of the S&P 500's gain this year, but public anger over rising electricity bills and job displacement is moving from social media into state legislatures — putting this highly concentrated rally at asymmetric policy risk.
How concentrated is this AI rally?
The S&P 500 is up 7.5% this year; nearly two-thirds of that gain comes from just eight AI-infrastructure names.
Micron and Western Digital have each more than tripled; the Philadelphia Semiconductor Index is up 90% in 2026 — on pace for its best year since 1999.
This means → the market's bet is stacked on a single theme. Any policy tightening aimed at AI infrastructure would hit the broad index far harder than the sector's weight alone suggests.
What are state legislatures actually doing?
Virginia — the world's largest data-center market — passed a budget this week that includes a tax on data-center power consumption.
California and Georgia have frozen new data-center construction permits; New York's legislature advanced a one-year moratorium on large new facilities, now awaiting Governor Hochul's signature.
Maine's Governor Mills vetoed a similar statewide freeze in April, but legislative pressure has not faded.
In plain terms = residents saw their electricity bills climb, their frustration moved from Twitter threads into statehouse chambers, and it is landing as real taxes and real bans.
How long could this backlash last?
BCA Research chief geopolitical strategist Matt Gertken sees a multi-year arc: "A rising populist backlash wave will continue to build over the coming years." Long-horizon investors, he warns, need to watch these forces converge.
If a recession gets blamed on AI, or AI-driven job losses keep making headlines, the political ground for taxing Big Tech widens further.
Gertken flags a non-trivial probability that the AI rally breaks down around 2028 — when election-year uncertainty compounds with the prospect of a Democratic administration pushing large-scale tax increases.
What does the worst case look like?
SimCorp managing director Melissa Brown calls a nationwide data-center ban the "worst case" — a short-term market blow, though she expects companies would still find paths to push AI development forward.
She adds: "We are already in a pretty uncertain political environment. Whether anti-AI sentiment can truly take hold is hard to say right now."
Evercore ISI strategists, in a June 1 note, highlight two more policy paths beyond taxes: mandatory government review of new models and courts expanding legal liability for model developers.
This reflects a fear broader than taxation — what the market faces is a potential multi-pronged regulatory push spanning permits, taxes, and the courts.
Is anyone not worried?
Founder Funds portfolio manager Michael Monaghan takes a more optimistic view: "The day we restrict American innovation is probably the day we stop being a global superpower."
He expects the federal government to largely stand aside, though the Trump administration's move this month to restrict access to some Anthropic models is a notable exception.
In plain terms = the bull case is that states may bark, but Washington won't really bite — yet that assumption itself is being chipped away, one executive order at a time.
When does the question get answered?
Utility-sector policy will largely track state-level election outcomes — and 36 gubernatorial races are underway this year.
Pennsylvania utility stocks sold off in April after Jefferies warned of rate-hike resistance — a live example of election pressure transmitting directly into share prices.
This means → whether the AI-infrastructure rally can continue depends on federal support offsetting state-level tightening — and that balance faces its most direct test around the 2028 election cycle.
Content is for reference only, not financial advice.