Trump’s midterm drubbing demonstrates the power of data center opponents

HONG KONG/LONDON – Data center opponents were among the biggest winners of the Democrats’ landslide victories in the U.S. midterm elections, pointing to a shifting public mood on artificial intelligence and, investors said, a possible slowdown of the boom that has propelled U.S. economic growth and stock markets.

The size and breadth of the Democratic wave were still coming into focus on Wednesday. But in gubernatorial races in Texas and Georgia, Democrats who campaigned in part on a moratorium on data center development won offices that the party has not held for decades.

Their victories hand political heft to opponents of the projects, which are at the heart of the AI boom but are loud, thirsty for water, hungry for electricity and increasingly unpopular with their neighbors, investors said.

U.S.-based data center stocks slid as the Democratic sweep became apparent. Core Scientific fell 11.6% and Iren tumbled 12.5%, while other AI infrastructure firms such as Applied Digital, Hut 8 Corp., Cipher Digital and power firms such as GE Vernova, Constellation Energy and Vistra slumped.

Investors said the results are likely to usher in tougher regulation and could ripple across financial markets where AI stocks were falling on Wednesday; big bets have already started to wobble due to concerns about spending and overcapacity.

“In our view, the significance of these midterm elections is more like a referendum on AI than a referendum on (Donald) Trump,” said Aidan Yao, a senior investment strategist at the Amundi Investment Institute, the research arm of Europe’s largest asset manager.

“If the AI theme is subject to some restrictions, then the U.S. economy, U.S. inflation and U.S. monetary policy all become very, very uncertain.”

In the mix too is the upcoming initial public offering of Anthropic, which is preparing to begin formally marketing shares to prospective investors next week. An amended regulatory filing on Monday showed Anthropic’s net loss narrowed in the third quarter, as revenue surged 47% from a quarter earlier to $16.96 billion, though the pace of growth slowed.

The most stunning ballot box repudiation was in Texas, which GLJ Research has estimated accounts for about a quarter of U.S. data center capacity due to come online by 2030.

An attendee during a city council meeting in Mason, Michigan, on Oct. 19 | NICK HAGEN / THE NEW YORK TIMES

But Democrat Gina Hinojosa ousted Greg Abbott as governor in an upset that ended three decades of Republican hold on the office, while fellow party member James Talarico became the senator-elect.

A conservative, oil-producing state, Texas has worked for years to reinvent itself as a tech hub, attracting companies such as SpaceX and entrepreneurs like Elon Musk, who donated more than $150 million to Ken Paxton, the Republican who lost to Talarico.

But even Republicans turned against data centers, which opponents say drive up utility bills, pollute the night sky with lights and do not create sufficient jobs or taxes to justify the incentives that states pay.

“Data centers in space looking pretty appealing right now,” Musk said on social media after the election.

Goldman Sachs said Democratic statehouse victories in Texas, Michigan and Georgia could put roughly 45% of planned U.S. data center capacity at risk from potential construction moratoriums, tighter regulations and reduced tax incentives.

In Georgia, where commercial real estate services and investment firm CBRE says Atlanta is the most active data center construction market in the country, Democrat Keisha Lance Bottoms won the gubernatorial contest, ending more than two decades of Republican control.

How widely the data center and AI business is affected remains to be seen, HSBC analysts Max Kettner and Duncan Toms wrote.

“One possible — and entirely feasible — scenario is that we won’t see broad-based data center moratoriums but rather more regulations/higher oversight on data centers,” they said. “Another one is that data centers simply move from Texas to other states.”

Analysts at Morgan Stanley said the election of Democrat Amy Acton in Ohio as governor creates a significant risk of data center project delays in that state, including a 10-gigawatt project involving Nvidia that is the largest in the state. Ohio put a moratorium earlier this year on considering new data center tax exemption requests.

AI growth has driven stocks higher this year due to bets on chip demand while pushing up bond yields, as the data center construction boom boosts economic growth.

Chip and AI firms such as TSMC, Samsung Electronics, SK Hynix and Kioxia fell in Asia — along with bond yields — on Wednesday.

To be sure, many analysts said a slowdown in the building of data centers in the U.S. did not necessarily herald a change in demand for AI or computing power, and some view a roughly 8% drawdown in the Nasdaq over the past month as an opportunity to buy.

Tommaso Leodari, Dubai-based chief investment officer of hedge fund Index & Cie, said the risks for data centers were difficult to predict, given their vital role in America’s competition with China.

“I do not foresee limitations, higher taxes, or other kinds of opposition to the force behind a new industrial revolution for the U.S.

“I consider that Dems are going to continue being more moderate than before, so any fury will be directed at Trump and his team, not at a new industry that can save American imperialism,” he said.