Nasdaq futures reversed earlier losses after the Democrats swept the midterm elections, but cloud-computing stocks fell sharply premarket as investors weighed concerns about potential new regulations slowing the build-out of artificial intelligence.

Tech investors had gone into the midterms worried that Democratic wins in local elections and a blue wave in Congress would result in regulations curtailing the expansion of data centers, and in turn hurting AI-linked companies' revenues.

However, after falling sharply on the first signs of a Democratic sweep, Nasdaq futures rallied, recovering from a 2.4% drop to last trade up 0.4% in volatile trade.

Big Tech names that poured billions of dollars into the build-out of AI rallied premarket, with shares in Alphabet and Meta rising by around 1%, while Microsoft added 2.1%.

However, there was some weakness among cloud-computing stocks, whose businesses are more closely tied to the build-out of data centers. CoreWeave shares dropped more than 9% premarket, while Astera Labs and Oracle fell by 6.45% and 4.5%, respectively.

SpaceX--whose revenue is powered in large part by its data center-leasing business--fell 7.7% premarket, though investors' concerns that Elon Musk could be subject to congressional oversight also added to the stock's troubles.

The midterms have increased the risk of data-center projects being blocked or banned by local governments, Allianz analysts wrote in a research note. Democrats put data-center restrictions at the core of their offering to voters.

As well as voting for candidates, voters in communities in Ohio, Illinois, Maine and Florida passed a range of local initiatives banning or restricting data-center construction.

"Data centers in space looking pretty appealing right now," Musk wrote in a post on X.

Other strategists are less convinced the midterms will knock the AI trade.

"It's quite hard to see how big things change with regards to the AI trade and data centers," said Will Hobbs, chief investment officer at asset manager Brooks Macdonald.

The Democrats' sweep doesn't represent a repudiation of data centers or the AI build-out, said Lombard Odier's head of investment strategy, Nannette Hechler-Fayd'herbe.

"I don't think it's a vote against that," she said. "As with everything, there needs to be regulation and oversight and control, and this is likely what we will see over the coming two years."

Support for AI advancement is bipartisan, Hechler-Fayd'herbe noted, citing President Joe Biden's Chips and Science Act.

"I expect demand for compute capacity to continue. I expect also electricity needs to continue," she said.

Outside the U.S., Korean and Japanese AI stocks slipped, with markets in the region closing before U.S. indexes rallied. European AI-linked stocks also wobbled, with stock in the continent's most valuable company, ASML, falling by around 2.6%.