US midterm results threaten data center boom as AI backlash grows

Opposition to data centre development emerged as a major winner in the US midterm elections, raising concerns among investors about tighter regulations and a potential slowdown in the artificial intelligence boom that has supported economic growth and stock market gains, Reuters reported.

Democratic candidates who campaigned on restricting data centre construction won gubernatorial races in Texas and Georgia, ending decades of Republican control in both states.

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Reuters reported that the victories have strengthened opposition to data centers, which face growing criticism over their high electricity and water consumption, environmental impact and limited local employment benefits.

Data center and AI infrastructure stocks tumbled on Wednesday. Core Scientific fell 11.6%, while Iren declined 12.5%. Applied Digital, Hut 8 Corp and Cipher Digital also dropped, alongside power companies GE Vernova, Constellation Energy and Vistra.

Investors fear the election results could trigger tougher regulations, construction moratoriums and reduced tax incentives. Goldman Sachs estimates that Democratic victories in Texas, Michigan and Georgia could put around 45% of planned US data center capacity at risk.

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Texas and Georgia victories raise concerns
Texas emerged as a major battleground for the industry. GLJ Research estimates that the state accounts for nearly a quarter of US data center capacity expected to become operational by 2030.

Democrat Gina Hinojosa defeated Republican Greg Abbott in the gubernatorial race, while James Talarico won the Senate contest. Georgia also saw Democrat Keisha Lance Bottoms win the governor's race, ending more than two decades of Republican control.

According to Reuters, growing opposition to data centers has crossed party lines, with critics arguing that the facilities increase electricity bills and receive excessive tax incentives.

Morgan Stanley analysts also flagged risks of project delays in Ohio following Democrat Amy Acton's gubernatorial victory. These include a 10-gigawatt data center project involving Nvidia.

AI investment faces fresh uncertainty
The election results come as investors are already questioning the scale of AI spending and the risk of excess infrastructure capacity.

Reuters reported that semiconductor stocks, including TSMC, Samsung Electronics, SK Hynix and Kioxia, declined in Asian trading on Wednesday. Bond yields also fell as markets reassessed the outlook for AI-related investment.

However, analysts said slower data center construction would not necessarily translate into weaker demand for AI or computing power. Companies could also shift projects from states with tighter restrictions to other locations.

The political uncertainty comes as AI startup Anthropic prepares for a potential initial public offering. Its revenue surged 47% sequentially to $16.96 billion in the third quarter, while its net loss narrowed, according to an amended regulatory filing.

Investors remain divided over the longer-term impact. While some fear regulatory restrictions could disrupt the AI investment boom, others believe the industry's strategic importance in the US competition with China will limit the extent of government intervention.


(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)