AI Stocks Slide After Election Results Raise Data Center Risks

Artificial intelligence stocks dropped sharply after midterm election results brought new political hurdles for data center construction.

The losses followed a series of Democratic victories in key states, including a major upset in Texas where Democrat Gina Hinojosa defeated incumbent Republican Governor Greg Abbott. Markets were already preparing for Democrats to win the House of Representatives and potentially control the Senate, but losing the Texas governor's office was a major blow to the technology sector. Hinojosa campaigned on a platform to enact an immediate moratorium on data centers in the state.

Texas holds 27% of all planned data center gigawatts in the United States, making the election outcome a severe worry for tech investors. Dan Ives, a partner at Yorkville Ives & Co., noted that the shift in Washington and Texas will create major hurdles for artificial intelligence and technology legislation over the next two years.

The political shift adds pressure to an already cooling artificial intelligence market. The Nasdaq-100 index fell into correction territory at the end of October as concerns grew that spending growth by big cloud providers and private AI firms like OpenAI and Anthropic was slowing down. Wells Fargo equity strategist Ohsung Kwon had warned clients beforehand that a Democratic win in the Texas governor's race could pose a major risk to the AI trade.

Other key data center states also saw Democratic wins or retained governorships, including Georgia, Pennsylvania, and Ohio. Georgia accounts for 7% of planned U.S. data center capacity, while Ohio and Pennsylvania hold 5% each. Optimal Advisory's Washington policy team wrote that data centers have shifted from popular economic development tools to political targets, sending a signal to officials that blocking or delaying projects carries political upside.

Elon Musk's companies also felt the impact of the Texas outcome. Tesla shares fell 5% and SpaceX shares dropped 4% in morning trading. Musk spent a record sum on the midterm elections, including $224 million in Texas alone, where his preferred candidates lost. SpaceX is actively building multi-gigawatt data center projects, including sites in Texas. Following the results, Musk posted on social media that building data centers in space is starting to look quite appealing.

Other AI infrastructure and cloud stocks also slipped, with CoreWeave and Iren falling 4% and Nebius Group dipping slightly. However, major tech giants like Alphabet, Amazon, Meta, and Microsoft largely bucked the downward trend and traded higher.

Summary

The midterm election results in Texas and other key states threaten to slow down the rapid expansion of artificial intelligence infrastructure. Because a large share of planned data center capacity is concentrated in Texas, local political opposition and potential construction moratoriums could create major roadblocks for the tech industry's growth.