Democratic midterm wins threaten data centre boom in key US states

Strong wins for Democratic candidates threaten the prospects for energy-hungry data centres in key states in the United States, and could slow the AI rollout that has driven Wall Street over the past four years.

Issued on: 04/11/2026 - 14:49

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The prospect of tighter regulation weighed on shares in AI heavyweights such as Elon Musk’s SpaceX before the opening of US markets, after falls for major Asian chipmakers including South Korea’s Samsung.

The campaign was marked by growing concern about the environmental impact of the data centres springing up across the US. It ended in a stinging rebuke for President Donald Trump’s Republican Party.

Trump is an enthusiastic supporter of light-touch regulation for what he calls “super intelligence”.

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Democrats won key Republican strongholds such as Texas, where both the Senate seat and the governorship went to candidates who back tighter regulation of data centres.

“We need an immediate moratorium on data centres to last until the legislature can meet to put in place real protections so Texans can have a seat at the table to decide if and how data centres come into their communities,” Gina Hinojosa, a lawyer who defeated the incumbent governor Greg Abbott, said during the campaign.

Abbott had wanted to make the Lone Star State the “nerve centre” of artificial intelligence and data centre development. He has since notably shifted his position, amid growing public backlash over energy and water supplies.

Data centres need large amounts of fresh water to cool their servers, which has raised fears of local shortages.

Hinojosa has called for an end to the sector’s tax exemptions. So has her fellow Democrat James Talarico, who was elected to the US Senate for Texas on Tuesday.

Analysts had described the result in deeply conservative Texas as a crucial test for the future of AI infrastructure.

Texas has abundant energy and a favourable regulatory framework. According to calculations by Bloom Energy, the state is expected to account for nearly 30 per cent of US electricity demand for AI operations by 2028, and that share is projected to rise sharply.

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Regulatory impact

Alphabet, Google’s parent company, has announced plans to build several data centres in Texas. Musk spent hundreds of millions of dollars backing the Republicans, and he has moved the headquarters of his flagship companies – Tesla, SpaceX and X – to the state.

“Data centres in space looking pretty appealing right now,” Musk joked after the vote, referring to his plan for a satellite computing network.

But investors are increasingly worried that tougher rules will make it harder for AI companies to earn a return on their huge investments.

“Democratic opposition to rapid data centre expansion could focus on power use, environmental constraints, local infrastructure strain, competition policy and the social consequences of AI deployment,” said Patrick Munnelly, a market strategist at the brokerage Tickmill Group.

“None of this necessarily breaks the long-term AI theme, but it can raise the hurdle rate for investment,” he added.

The biggest regulatory impact will come at state level, which puts governors at the centre of the response to voters’ concerns.

“Given the size of the Democrats’ victory, adding Texas governorship, and a 29 to 1 lead to restrict data centres, politicians that want to remain employed as politicians are going to heed these messages,” financial analyst Jim Bianco wrote on X, referring to concerns about data centres.

In Georgia, another state with many data centre projects in the pipeline, the new Democratic governor, Keisha Lance Bottoms, “has advocated a temporary statewide pause on new data centres, alongside requirements intended to ensure that large customers bear the costs associated with their infrastructure,” said Stephen Innes of SPI Asset Management.

Amy Acton, the newly elected Democratic governor of Ohio, has also promised tighter regulation of data centre construction.

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