In U.S. The Fate of Data Centers Is Uncertain For Tech Industry

Several Democratic candidates opposed to the construction of new data centers in their state were elected Tuesday, a sign of growing rejection of AI.

Republicans aren’t the only big losers in the midterm elections : data centers also risk being swept away by the blue wave that hit the United States on Tuesday, November 3. Democratic candidates who had campaigned on a moratorium on these infrastructures powering artificial intelligence won governorships their party hadn’t held for decades, such as in Texas and Georgia . And while numerous local referendums were also held, voters approved almost all of the proposed moratoriums on new installations in some forty jurisdictions across a dozen states.

This result reveals a shift in public opinion regarding AI, and investors believe it could signal a slowdown in the boom that has fueled economic growth and stock markets in the United States. These victories effectively give considerable political weight to opponents of this infrastructure, which is central to the rise of artificial intelligence but, being noisy and consuming vast amounts of water and electricity, is increasingly viewed negatively by local residents .

As a result, US stocks in the sector plummeted as the Democratic wave took shape. Core Scientific lost 11.6% and Iren plunged 12.5%, while other AI infrastructure players, such as Applied Digital, Hut 8 and Cipher Digital, as well as energy companies like GE Vernova, Constellation Energy and Vistra, also recorded a sharp decline.

Investors are indeed expecting stricter regulations, with potential repercussions across all markets. “In our view, these midterm elections are more of a referendum on AI than a referendum on Donald Trump ,” Aidan Yao, senior strategist at the Amundi Investment Institute, the research arm of Europe’s largest asset manager, told Reuters. “If AI were to be subjected to restrictions, the US economy, inflation, and monetary policy would all become extremely uncertain,” he emphasized.

Setback in Texas

The most dramatic setback came from Texas, which is expected to host roughly a quarter of the data center capacity slated to come online in the United States by 2030, according to GLJ Research estimates. This conservative, oil-rich state has been striving for years to reinvent itself as a tech hub, attracting companies like SpaceX and entrepreneurs like Elon Musk.

On Tuesday, Democrat Gina Hinojosa, who has promised to halt new data center projects, defeated incumbent Governor Greg Abbott, ending thirty years of Republican control of the governorship. Meanwhile, James Talarico won a Senate seat against Ken Paxton, despite Elon Musk contributing over $150 million to support the Republican candidate. “Data centers in space are becoming quite tempting,” the X CEO quipped on his social media platform after the election.

In Georgia, where Atlanta is the most dynamic data center construction market in the country according to commercial real estate specialist CBRE, Democrat Keisha Lance Bottoms also won the governorship, ending more than twenty years of Republican dominance.

Even some Republicans have turned against data centers, which their critics accuse of driving up electricity bills , polluting the night sky with their lighting, and not generating enough jobs or tax revenue to justify the aid they receive from states.

Towards more control?

Goldman Sachs believes that Democratic victories at the state and local levels should lead to temporary suspensions of projects, potentially affecting about 45% of planned capacity expansion in the United States, but considers this effect to be short-lived. “A possible, and entirely plausible, scenario would be not a wave of widespread moratoria, but rather a strengthening of regulation and oversight,” note Max Kettner and Duncan Toms, analysts at HSBC. “Another possibility: data centers could simply relocate from Texas to other states.”

According to Morgan Stanley analysts, the election of Democrat Amy Acton as governor of Ohio—where no fewer than 21 moratoriums on the issue were up for a vote—poses a significant risk of delays to the state’s projects, the largest of which, a 10-gigawatt project, involves Nvidia. Ohio has also suspended the review of all new tax exemption applications for data centers this year.

Tommaso Leodari, however, is optimistic: the investment director of the Dubai-based hedge fund Index & Cie believes the risks to data centers should not be overestimated, given their crucial role in the rivalry between America and China . “I don’t expect any restrictions, tax increases, or any other form of opposition to the engine of a new industrial revolution for the United States. I think the Democrats will be more moderate than before: their anger will be directed at Trump and his team, not at a nascent industry capable of saving American imperialism,” he told Reuters.

In July, Democratic Governor Kathy Hochul made New York the first state to suspend the development of data centers of 50 megawatts or more for a year, a decision then described as “terrible” by Donald Trump. This Tuesday, according to an exit poll conducted by NBC, 56% of voters surveyed said that AI and data centers were a “crucial or major” factor in their vote.