Shares of several artificial intelligence-linked companies fell Wednesday after midterm election results showed a strong showing by Democrats, with the biggest blow coming from Texas. Investors are now weighing whether state-level limits on data centers could slow projects in some of the country’s most important buildout markets.
Why did AI stocks fall after the Texas governor's race?
Democrat Gina Hinojosa won the Texas governor’s race after campaigning for an immediate moratorium on data center development in the state. She defeated incumbent Republican Gov. Greg Abbott. Markets had already expected Democrats to win the House and possibly take control of the Senate, but analysts said the Texas result was a big setback for the AI trade.
How could Texas data center limits affect AI buildouts?
The stakes in Texas are large. Wells Fargo estimates that 27% of planned data center gigawatts are in the Lone Star State. Dan Ives, a partner at Yorkville Ives & Co., said in a note Wednesday morning that the midterms will slow the pace of data center buildouts across the country. He called the Texas race the “biggest worry” of the night for tech investors, because roughly 25% to 30% of data center gigawatts and capacity will come from there.
“There is no way to sugarcoat that Democrats taking control especially over the Senate will create some major hurdles for AI and tech legislation in the Beltway over the next 2 years,” Ives said.
The sell-off was broad among AI names. Neocloud companies CoreWeave and Iren fell 4% in morning trading Wednesday. Nebius Group was down about 0.5%, and Nvidia was slightly lower. Oracle rose 2%.
How did Musk's companies and other tech stocks trade?
Elon Musk’s companies took a hit as well. Shares of SpaceX fell 4% after the open, and Tesla shares dropped 5%. Musk heavily backed Republican candidates this cycle, spending a record of at least $474 million on the midterms, according to the reports. He put $224 million into Texas alone, where Republican Senate nominee Ken Paxton and Abbott both lost. SpaceX is currently building multiple gigawatts of data center capacity, including projects in Texas.
Musk addressed the situation in a post on X early Wednesday. “Data centers in space looking pretty appealing right now,” he wrote, referring to his speculative plans to build AI infrastructure off the planet.
Not every tech company slid. Alphabet rose 3%, Amazon gained 7%, Meta was up 2%, and Microsoft climbed 5.5%.
The Texas result adds to pressure on a trade that has driven the stock market higher. The Nasdaq-100 fell into correction territory at the end of October amid concerns that spending on data centers by large hyperscalers and private AI companies OpenAI and Anthropic was slowing.
Ohsung Kwon, Wells Fargo’s chief equity strategist, wrote in a report this week that the market’s reaction to the midterms depends mostly on the Texas governor’s race. “A Dem win could potentially be a left-tail event to the AI trade,” he said.
Democrats also won or retained governorships in other key data center states, including Georgia, Pennsylvania and Ohio. Wells Fargo estimates Georgia accounts for 7% of all planned U.S. data center gigawatts, while Ohio and Pennsylvania each account for 5%.
Michael Hartnett, a notable investment strategist at Bank of America, warned earlier this year that a Democratic Senate win combined with control of the Texas governorship could lead to a “big slump” in stocks of more than 10% by year-end.
The political climate around data centers has shifted quickly. The Washington policy team at Optimal Advisory wrote this week that data centers went from being a popular economic development tool in 2024 and 2025 to something of a pariah as the midterm campaigns gathered steam. “The midterms are likely to send a message to local and state officials that there is a political upside to blocking, delaying and/or raising the cost of data centers,” the firm wrote.
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