Data center opponents fuel Democratic wins in US midterm elections, threatening AI boom

Democratic candidates in Texas, Georgia and Ohio won gubernatorial races after campaigning on data center moratoriums, handing political power to opponents of the projects. US data center stocks fell sharply as investors predicted tougher regulation and potential delays to nearly half of planned cap

Data center opponents were among the biggest winners of the Democrats' landslide victories in the US midterm elections, pointing to a shifting public mood on AI and, investors said, a possible slowdown of the boom that has propelled US economic growth and stock markets. 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 neighbours, investors said. US-based data center stocks slid as the Democratic sweep became apparent. Core Scientific fell 11.6 per cent and Iren tumbled 12.5 per cent, 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 also 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.

Goldman Sachs said Democratic victories at the state and local level would likely lead to temporary halts to projects, potentially affecting some 45 per cent of planned US data center capacity expansion, though they think it will be short-lived. In Texas, which GLJ Research has estimated accounts for about a quarter of US data center capacity due to come online by 2030, 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.

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. 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.

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.”