This week's US midterm election results showed voters' resistance to data center construction. Although this creates headwinds for an important source of US economic growth, restricting data center construction may instead help reduce the risk of an artificial intelligence (AI) bubble and ultimately prevent a future economic downturn. About half of all planned data center expansion projects across the United States could face stricter scrutiny. Democrats achieved historic victories in states such as Texas, Georgia, and Ohio, where many candidates opposed unconstrained data center construction during their campaigns and may move quickly to deliver on an idea that has already gained widespread popularity nationwide. Tech investment has become more important to the US economy than ever before, but the astonishing scale and speed of this investment boom inevitably raise concerns that a bubble may eventually burst. "If some regulatory pressure slows the pace of data center construction, it could actually prevent the bubble from inflating too much," said Deutsche Bank Securities economist Brett Ryan. "It also provides a good reason to cancel some projects that already looked less reliable." This highlights a core contradiction in the post-pandemic US economy: growth has rarely depended so heavily on a small number of industries pouring enormous sums into a new technology, while how much return that technology can ultimately deliver remains difficult to quantify. US AI-related stocks were hit by heavy selling on Thursday, sounding a warning to investors. This AI boom has supported consumer spending by boosting household wealth, but if the AI-themed trade reverses, the backlash could follow. Over the past year, capital spending on data processing hardware and software alone has given an unprecedented boost to the US economy, contributing even more than at the peak of the 1990s internet bubble. A report released on Thursday showed that broader US economic growth was driven almost entirely by productivity gains. However, economists say the productivity boost that AI may bring is still largely absent from the data. At the same time, monthly US data center construction spending has nearly doubled over the past 12 months, approaching $100 billion on an annualized basis. Economists currently do not expect investment to fall back immediately, because many data centers scheduled to begin operating next year have already started construction. Still, if the pace of breaking ground on new facilities begins to slow, the midterm election results could have a greater impact on the outlook for 2028. Ryan noted that Deutsche Bank had already expected investment growth to slow by then. Referring to Tuesday's election results, he said, "My first reaction would be, okay, for now I don't need to raise my 2028 forecast."
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