The week ahead: Midterms and AI markets

Good afternoon, traders.

As we're sure you're already aware, tomorrow, November 3, is Election Day, which means that all of us will soon be free from election cycle chaos. Unfortunately, that means we are still obligated to once again dedicate part of this newsletter to the biggest midterm races.

Additionally, you've probably noticed that things have gotten a little wild in the world of AI. Anthropic filed for its S-1 last Monday in preparation for its IPO. The details of its finances were interesting, but the 80 pages it spent talking about the threats its models pose to humanity were arguably more so.

With both of those topics to tackle, we’re going to get right into it.

From a high level, traders are forecasting a 75% chance that the Democrats sweep both the House and Senate. Currently, Republicans control both the Senate and the House but price increases, the war in Iran, and voter disillusion with the economy have likely played a role in Democrat candidates gaining significant momentum in various swing states.

One of the races that traders are predicting will flip seats is the Texas Senate. Though Republican candidate Ken Paxton was forecast at an 80% chance of winning earlier this year, Democratic candidate James Talarico has overtaken him as a favorite and is now forecast at a 75% chance of winning the seat.

The state has been a Republican stronghold for a long time and overwhelmingly voted red in the 2024 elections, but joins a growing contingent of states where some voters feel left behind by an economy whose gains have largely passed them by.

Similarly, another state where the Republicans were forecast to win earlier this year but has since tightened in the minds of traders is in the Iowa Senate. Ashley Hinson was given a nearly 83% implied probability of winning the seat in April 2026, but now traders see the race as neck and neck.

Like Texas, one reason the race has become so close is likely due to the economic environment. Iowa's economy is very agriculture-heavy and therefore has been impacted by tariffs, rising cost of fertilizer, and increased energy prices due to geopolitical conflict in the Middle East. One CNN poll showed that three-quarters of residents thought federal policy had increased their cost of living. Additionally, these events may have polarized independents and non-voters in favor of Turek simply because he has been a strong critic of these policies.

The last race that we'll be taking a look at is one that is much more local but has still made headlines nationwide: the Los Angeles mayoral election.

Incumbent Karen Bass is currently favored by traders to win, but not by a huge margin. This race has seen significant volatility over the past few months and shows infighting within the Democratic party between traditional Democratic organizations and Democratic Socialists.

Nithya Raman is running on the idea that current approaches aren't strong enough to fix issues regarding homelessness, housing, and policing. As part of rising cost of living across the country, Los Angeles has felt it hard, especially in regard to housing. Raman proposes building more apartments and increasing the number of high-density housing units near existing neighborhoods and transit whereas Karen Bass leans toward building affordable housing and preserving neighborhood zoning restrictions.

As always, elections can get crazy and forecasts can change rapidly. But no matter what state you're in or who's on your ballot, we're sure there are markets on Kalshi that you can trade on or just use to get information about the races impacting you.

On Monday of last week, Anthropic filed its initial Form S-1 with the Securities and Exchange Commission as part of its plans to IPO.

In the document, parabolic revenue growth was disclosed with some enormous compute commitments along with a huge list of potential concerns that super intelligence could pose to the world.

While one of those items makes for better headlines, what captivated many finance-minded individuals was how Anthropic scaled from $4.6 billion in revenue in 2025 to generating almost $17 billion a quarter in revenue in Q3 of this year, up 1,127% YoY, primarily driven by usage-based AI consumption.

This level of growth has naturally caused many to consider the sustainability of these revenue sources and user base, a large portion of which comes from coders. This makes sense as Anthropic is by far traders' favorite to be the AI company with the best coding model at the end of 2026 though traders currently give Gemini a slight edge over Claude for which will be the Best AI at the end of 2026.

While competition from other tech giants poses a potential threat to the company's core business model, another detailed risk comes from legislators. Many neighborhoods and states across the United States have increasingly expressed opposition to the construction of the data centers that AI companies rely on. As such, traders are forecasting that at least 4 states will adopt data center moratorium laws this year.

While AI has exploded both as an industry and as a topic on our social feeds, we aren’t going to pretend to be experts on exactly where things are heading. But if you are looking for some insight into AI and the policy behind it, check out some more markets we have on AI Policy here.

Follow Jack Kuveke at Jabroni Capital
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