Morgan Stanley noted in its latest industry report that the US midterm election results could intensify policy uncertainty surrounding data center development and further worsen the US power shortage facing data center developers.
The election results show a growing trend of resistance to data center development across multiple US regions, creating risks of computing power shortages.
The report collectively refers to the affected names as "time-to-power" stocks — companies tied to powered shell providers and behind-the-meter power generation.
Texas: The most important election outcome
From a data center development perspective, the most important election result is the Texas gubernatorial race.
Democratic candidate Gina Hinojosa won, and Morgan Stanley believes this will bring greater policy uncertainty and constraints on future power supply, thereby raising the relative value and pricing power of existing facilities that already have secured power.
The backdrop is the severity of Texas's interconnection backlog: in August of this year, Governor Greg Abbott ordered an audit of all data center projects in the ERCOT queue, after which Texas paused some data center interconnection processes.
At that time, interconnection applications had reached approximately 474 gigawatts (GW), more than five times ERCOT's record peak electricity demand, with data centers accounting for about 90% of new electricity applications.
Abbott warned that development at this scale could threaten grid reliability and stability, and ERCOT consequently postponed transmission planning studies for the first batch of projects (Batch Zero) entering Texas's new large-load interconnection process for the first time.
One purpose of the audit was to distinguish credible projects from speculative applications that could inflate Texas's demand outlook.
Morgan Stanley outlined actions the Texas governor could take: first, issue an executive order pausing new projects (if the Republican-led state legislature quickly introduces guiding rules, the pause could last only a few months); second, appoint members of the power regulator PUCT (six-year terms, with a seat expiring in 2027); third, direct state agencies to slow down permits not yet issued.
Governor-elect Hinojosa has advocated pausing approval of new permits until legislation passes (not applicable to projects already under construction).
More enduring reforms — such as eliminating sales tax exemptions, authorizing local governments to veto projects, codifying ratepayer protections, and union hiring requirements — would require legislative cooperation from the state legislature.
Ohio: 10GW Nvidia project under pressure
In the Ohio gubernatorial race, Democratic candidate Amy Acton won, and Morgan Stanley believes this will significantly increase the risk of data center project delays in the state.
The state's largest at-risk project is a 10-gigawatt project involving Nvidia (NVDA.US) and a major US AI lab; another large project under construction is Amazon's (AMZN.US) 1.5-gigawatt facility in Fayette County.
In May of this year, Ohio suspended review of new data center tax exemption applications, with the state legislature studying data center expansion issues — tax exemption treatment is a key consideration in data center site selection.
Morgan Stanley emphasized that the resistance trend against data centers reinforces its concern about insufficient US data center capacity by 2028.
Losers list and valuation reassessment
Morgan Stanley listed the stocks with the greatest Texas data center and behind-the-meter power exposure (US tickers): CIFR, MARA, GLXY, SEI, VST, CEG, AEP, SRE, CNP and NRG, as well as power equipment stocks.
The relative "time-to-power" winners: WMB, EQIX, DLR, WULF, APLD, TLN, BE, and Louisiana-based HUT.
On individual stock valuations, analysts revisited assumptions using a probability-weighted approach.
Cipher Mining (CIFR): existing lease and bitcoin asset value totals $18 per share, plus a 56% weight assigned to the probability of signing data center leases at additional sites, yielding a $51.50 target price; the bear case assumes zero incremental projects, at just $5 per share.
Galaxy Digital (GLXY.US): Helios II (830 MW) is assigned a 95% probability of generating revenue on schedule by mid-2028, while Helios I Phase II (approximately 400 MW) and Phase III (approximately 200 MW), already contracted with CRWV, are assigned a 100% probability of timely energization, with SOTP valuation totaling $43.
RIOT's interconnection security value at its Corsicana and Rockdale sites may rise, but the proposed data center projects carry the risk of falling into policy uncertainty.
For independent power producers (IPPs), the report expects a knee-jerk underperformance in the sector, with VST leading declines and NRG and CEG following; TLN and PEG, which have no Texas exposure, are relatively resilient.
Morgan Stanley estimates the value of existing assets excluding data center upside as follows: VST at approximately $180 per share, NRG at approximately $129, TLN at approximately $430, and CEG at approximately $249.
ERCOT forward power prices are expected to decline only modestly.
TLN and CEG, with greater PJM exposure, are expected to relatively outperform, and investors can subsequently watch nuclear contracts (CEG, VST) and TLN's data center contracting progress.
The equipment and on-site power generation sector is expected to come under broad pressure due to risks of slowing data center industry growth rather than Texas exposure itself, with engine supplier INIO potentially most sensitive; GEV has the most diversified customer and regional mix, with limited impact on earnings forecasts but downward pressure on valuation multiples.
Bloom Energy (BE.US) was named a beneficiary: if Democrats increase resistance to gas turbines over environmental and noise concerns, its fuel cells — which emit no sulfur oxides or nitrogen oxides, consume no water, and produce no noise — become relatively more attractive in some states.
Solaris, based on four long-term contracts with hyperscale cloud providers and major data center operators, can obtain valuation support of $81 per share (current price $69).
Among utilities, CenterPoint (CNP.US) is most sensitive to the downside: it has the highest Texas exposure, trades at roughly an 11% valuation premium, and has crowded positioning; SRE, AEP, XEL and ETR also have Texas exposure.
The report expects capital to rotate toward defensive utilities such as AEE, ED and DUK while staying with ETR.
In colocation and digital asset infrastructure: EQIX has nine operating facilities in Texas (about 3% of its 280 data centers globally); DLR's Dallas metro area accounts for 4.2% of its 3Q26 annualized rent, and its 80 MW, $300 million Digital Garland project remains affected by the ERCOT verification process, but a slower or stricter approval environment will enhance the scarcity value of its stabilized assets that already have secured power.
WULF is immune to Texas regulatory uncertainty (its next project will most likely be in Kentucky); APLD has no Texas exposure and focuses on politically friendly states, making it a relative beneficiary as well.
The report maintains its highest conviction on WMB: as a behind-the-meter power solution relying on natural gas pipeline networks, it can supply gas and power to hyperscale cloud providers within 18 to 24 months of signing, and the current share price significantly underestimates the increasingly visible behind-the-meter data center power growth over the next 12 to 24 months.
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