Tuesday’s (Nov. 3) political earthquake could produce aftershocks that will be felt by the artificial intelligence (AI) industry in 2027 and beyond. Democrats’ coast-to-coast sweep of congressional races and governorships will hand the gavel to critics of the industry’s free hand from regulators in key committees on both sides of the Capitol and put data center skeptics in governors’ mansions in half a dozen or more states. It could also cast a chill over the data center build out in multiple states and municipalities.
Nowhere was the ground-shaking felt more strongly than in Texas. The Lone Star State elected its first Democratic governor in 36 years in Gina Hinojosa, who ousted the incumbent Republican, Greg Abbott. Hinojosa campaigned on keeping a statewide moratorium on data center construction in place until lawmakers tackle their impacts on water, electricity, air and property rights in the legislative session that ends in mid-2027. According to research firm SemiAnalysis, a hold of more than six months would bring extended delays to projects in Texas, which on paper accounts for 41% of new U.S. capacity in 2028, Axios reported.
Texas also elected its first Democratic U.S. senator in more than three decades in James Talarico, who campaigned on giving local communities more say on data center construction and forcing developers to pay for their own electricity and water.
Opposition to data centers proved a galvanizing issue for voters around the country. According to the Washington Post, voters in at least 29 jurisdictions approved bans or restrictions on data centers, out of 41 jurisdictions in 10 states where such measures were on the ballot.
“Voters just sent a clear message that they want rules for AI and data centers,” Brad Carson, co-founder of Americans for Responsible Innovation, told Axios.
Tuesday’s results also made the decision by AI leaders such as Mark Zuckerberg and Elon Musk to align themselves tightly with Donald Trump look like a bad bet. Musk contributed more than $400 million into races in support of the Republican party, with most of it going to prop up Trump-backed candidate Ken Paxton in Texas, only to see him lose by more than a million votes.
Many newly empowered Democrats, meanwhile, have long been critics of Big Tech leaders.
“They are going to need to plant new forests for all of the subpoenas we’ll be printing,” Massachusetts Sen. Ed Markey told Politico. Over in the House, the expected new chairman of the Oversight Committee, Robert Garcia of California, was more succinct: “Lawyer up” he posted on X.
Some investors were more sanguine on the results, however. “While Trump will likely veto any major draconian AI safety or regulatory laws, this will force the tech industry to the negotiating table to try to come up with compromises around legislation in Congress surrounding AI related legislation,” Yorkville Ives analyst Dan Ives wrote on Wednesday.
Political risks aside, the midterm results are likely to add to investors’ growing anxiety about funding the AI build out. Shares of Nvidia and AMD were each down 1% on early trading Wednesday morning while NASDAQ was up 1.75% and the Dow soared more than 1,300 points.
Applied Digital and CoreWeave were down 4.1% and 5.3%, respectively, while Cipher Digital sank 14.3%.
“The overnight price action suggested to us that the election results are unlikely to halt the rotation in leadership in the US equity market that’s been underway recently from big cap Growth to small caps,” RBC Capital Markets strategist Lori Calvasino wrote.
Incumbent hyperscalers were buoyed by the results, however. Shares of Amazon, Alphabet, Microsoft and Meta were all up solidly Thursday morning despite the prospect of ramped up regulation.
“We believe higher regulatory barriers entrench incumbents, and increase risks (and raise required ROICs) for new entrants,” Needham analyst Laura Martin wrote, referring to return on invested capital. “Hyperscalers are AI incumbents.”
