Ed Yardeni Talks Implications of Blue Wave in US Midterms

Ed Yardeni · Yardeni Research

Hyperscalers have large data-center backlogs they can rely on, so higher borrowing costs won't stop buildout.

Yardeni argues that the largest cloud operators have already locked in substantial commitments to build data centers and hold large backlogs they can rely on. This is why they are racing to build quickly. Because much of the buildout is contracted, rising bond yields and borrowing costs are unlikely to derail it in the near term.

“Well, [I] know, [we] have a lot locked in already in terms of commitments to building data centers. We've got lots of backlogs that the hyperscalers can pretty much rely on and which is why they're scrambling to build these data centers so quickly.”at 4:30

Ed Yardeni · Yardeni Research

Neocloud data-center borrowing was reckless; tighter credit and regulation will make it costlier.

Yardeni describes the financing of AI data-center buildout as a 'Wild West' in which neocloud providers have borrowed indiscriminately. He expects the bond market and regulators to tighten things, making that borrowing more expensive and more regulated. He cites OpenAI's failed attempt to raise more money than the market would supply as evidence the market is already pushing back. He sees this market discipline as a good development.

“But it's been kind of the Wild West and I think the sheriffs are coming in to cool things off. The neo clouds have been borrowing willy nilly and now that's going to be more expensive and more regulated.”at 4:51

Ed Yardeni · Yardeni Research

AI works and is real, but customers' revenue gains haven't yet translated into enough revenue for AI companies.

Yardeni argues AI is 'the real deal' because the technology actually performs useful work for customers, despite heavy spending across the industry. He then qualifies this: it is not yet clear that customers are generating enough revenue to pay the companies building AI. He treats the recent slowdown in the AI trade as healthy rather than a sign of failure, so his overall view is constructive on AI with monetization still unproven.

“AI is the real deal. I mean, clearly a lot of money is poured into the industry, but the result is AI does work. It's just it works for the customers. It's not clear that customers are generating enough revenues for the companies themselves.”at 2:24

Ed Yardeni · Yardeni Research

Analysts have not cut 2027–2028 earnings estimates; Yardeni projects $500 S&P 500 EPS by 2029.

Yardeni's team looked at weekly analyst consensus and found estimates for last week were roughly flat, with no meaningful downgrades despite some disappointing reports from companies such as Google and Intel. Analysts remain very bullish on 2027 and 2028. The consensus 2028 figure of $500 a share is the same level Yardeni has been projecting for 2029, which he cites as evidence that earnings expectations are intact and that the market's support has not weakened.

“we looked at the weekly analyst consensus expectations for last week and they were kind of flat. They didn't really lower their numbers. And as a matter of fact, they are still very bullish about 2027 and 2028.”at 3:33

Ed Yardeni · Yardeni Research

AI companies' slowing bond issuance is better for existing bondholders than for stock investors.

Yardeni says the bond market, the 'bond vigilantes', is properly regulating credit by tightening funding for AI spending, which he views as healthy. He argues that AI-company bonds are a better place to be than AI stocks, because stocks still face uncertainty about when the heavy spending will generate earnings. A slowdown in new AI bond supply would reduce pressure on debt already issued, which supports existing bondholders.

“I think it's better for the bonds. ... But to have a slowdown in the issuance of bonds, the supply of bonds by the AI companies, I think takes the pressure off of what's already been issued.”at 5:22

Ed Yardeni · Yardeni Research

A Democratic House and Senate sweep would bring worse partisanship, longer shutdowns, and a market-negative gridlock shock.

Yardeni argues this midterm is more consequential than usual because Democrats could win the House and possibly the Senate, producing a radical change in the party. He says markets must weigh the risk that partisanship becomes much worse than it has been. That would make future government shutdowns last longer and hurt the government and economy more. Unlike past periods, he says, markets may not welcome gridlock this time, since the country may need bipartisan deficit-reduction legislation. He expects that to be a cold shower for stocks.

“we are talking about a radical change in the democratic party and if the democrats do in fact gain the house and maybe even the senate. I think the stock market has to consider the possibility that partisanship will be much worse than it has been so far.”at 6:15