A divided US government could be good news for Big Tech stocks in the 2026 midterm elections, according to Jefferies analysts. They believe a split government could help large technology companies continue spending heavily on artificial intelligence (AI) infrastructure.
2026 midterm election outlook
This could allow AI development and innovation to continue at a faster pace. Congress is also considering more AI safety bills, but Jefferies expects these measures to face difficulties unless a major event pushes AI safety higher on the political agenda. Jefferies believes several Big Tech and AI-related stocks could benefit from this environment. The list includes Amazon, Alphabet, Microsoft, Oracle, CoreWeave, Snowflake, Datadog and Meta. Amazon (AMZN) could benefit regardless of which AI model eventually becomes the market leader. Microsoft (MSFT) is another major potential winner. Oracle (ORCL) could also benefit if problems around data-centre approvals and regulations become easier. CoreWeave (CRWV) is also on Jefferies’ list. Snowflake (SNOW) could benefit from the growing need for data infrastructure for AI. Datadog (DDOG) could gain as AI systems become more advanced. Meta (META) is another stock Jefferies expects to benefit. The firm pointed to renewed momentum among consumers and small businesses, helped by products such as Muse and Meta Business Agents. Jefferies analysts made this assessment in their research note. For the stock market, however, the key issue is usually not simply which political party wins. Investors are more focused on how much uncertainty the election creates around taxes, regulation, government spending and other business policies. This uncertainty is particularly important as investors decide where to put their money during the remaining years of the Trump presidency. Changes in government policy can affect the outlook for companies and their investments. Jefferies believes this could give large technology companies more room to continue their AI infrastructure spending. Jefferies’ picks include Amazon, Alphabet, Microsoft, Oracle, CoreWeave, Snowflake, Datadog and Meta, with the firm particularly highlighting companies that are already strong in cloud, AI infrastructure, enterprise technology and consumer platforms.
Jefferies specifically pointed to Gemini 4 Pro and future versions as part of Alphabet’s opportunity, according to Yahoo Finance. Jefferies also expects the Republican Party could suffer losses in the 2026 midterms. The analysts noted that the president’s party has lost House seats in 18 of the last 20 postwar midterm elections. Jefferies cited President Donald Trump’s approval rating of about 39% and independent voters at 24% as reasons for expecting a GOP setback. The 2026 US midterm elections will take place on November 3. Voters will elect all 435 members of the House of Representatives and 35 senators. Truist chief strategist Keith Lerner said every midterm election year since 1946 has been followed by positive one-year stock returns, according to Yahoo Finance. The strongest one-year gain after a midterm election came after the 1954 elections, when stocks gained 34%, according to Lerner. The average one-year stock market gain after midterm elections has been 14.4%, Lerner said.
The firm therefore expects limited policy risk for AI infrastructure spending and AI model development. Because a less restrictive policy environment would give the company more time to compete in the AI model race, alphabet (GOOG) could benefit. Because its software and technology are already widely used in corporate IT departments, jefferies said Microsoft has a high level of trust among enterprise customers. Because they will decide which party controls Congress, the elections are especially important for investors. A divided government could therefore be viewed positively by some Big Tech investors if it reduces the chances of aggressive or fragmented AI regulation. For 2026, the combination of a possible GOP setback, divided government and continued AI spending could therefore create a favourable setup for some large technology stocks.
Jefferies said a divided government could increase the chances of a national AI policy instead of different AI rules being created by individual states. The investment firm said this situation could especially help large technology companies that have strong businesses and have earned the trust of companies and consumers. Jefferies said Amazon has taken a model-neutral, platform-based approach, meaning it can work with different AI models rather than depending on just one winner. Jefferies said Oracle is emerging as the fourth major enterprise cloud option and could see significant upside if permitting and regulatory hurdles are reduced. The firm said CoreWeave is quickly becoming a major alternative to the biggest cloud companies and has built strength in deploying Nvidia-based AI infrastructure while expanding its software capabilities. Jefferies described Snowflake as one of the top two vendors for AI data plumbing, which refers to the systems needed to move, manage and use data for AI, according to Yahoo Finance. Jefferies said monitoring and observing AI systems will become increasingly important as AI agents become more capable. That control can influence major policies affecting businesses and financial markets, according to Yahoo Finance.
The broader stock market has also historically performed well after US midterm elections. Jefferies research analysts said this in a new note on Monday, as noted by Yahoo Finance.
AI regulation is already increasing across the US.
Jefferies said states are taking the lead on AI regulation, but most of the AI rules that have already been passed or proposed are still relatively limited and are not expected to seriously hurt the industry.
