Democratic candidates with tough stances toward data centers won their gubernatorial and congressional races in Tuesday's midterm elections, and dozens of ballot measures targeting the facilities also prevailed across the U.S.
AI data center shares fell in premarket trading. Nebius down 4%; CoreWeave, IREN down nearly 3%; Core Scientific, Applied Digital down around 2%.
But some analysts aren't predicting a collapse in the development of data centers, which are crucial to the booming artificial-intelligence industry. Instead they're forecasting that spending will continue but costs will rise - and the buildout will shift to states and localities that make deals with developers or are generally more welcoming to the centers.
Data-center projects now look set to face greater policy risk, much of it from states and municipalities and in the form of moratoriums, permitting restrictions, utility-rate changes and added reporting requirements, said Bloomberg Intelligence analysts.
"We don't expect those policies to materially reduce overall U.S. data-center spending, but they could delay, relocate or raise costs for individual projects," they said in a note.
Analysts at Evercore ISI and Raymond James made similar points.
"Democrats winning gubernatorial races in Texas, Ohio, and Georgia -which have a significant share of the U.S. project pipeline - means new pauses and restrictions on data-center development," Evercore's analysts said. "Still, the impact of any pause or moratorium will hinge on the details, such as any grandfathering, and whether projects facing prolonged disruption can relocate to other states."
The Raymond James analysts said: "For the AI trade, we believe the greatest risk is not an immediate collapse in capex, but a meaningful - and potentially underappreciated - repricing of the cost, timing and location of the U.S. buildout."
Gary Cohn, IBM's (IBM) vice chairman and a former economic adviser to President Donald Trump during Trump's first term, also is forecasting movement to receptive places, rather than a big drop in development.
"Data centers can move from location to location," Cohn said in a CNBC interview on Wednesday morning. "You take a place like West Virginia... there's a enormous amount of natural gas in West Virginia. You can build an enormous amount of electrical generation 'behind the meter,' that won't affect the grid whatsoever, and you can put your data centers in West Virginia."
"Many jurisdictions have somehow found out that data centers aren't so bad - ultimately they bring in tax revenue, and we can pay the teachers more, we can pay police more," Cohn added. "Each of these states and each of these jurisdictions is going to have to evaluate on its own, and this is going to be very local. I'm sure there will be some states - they will put some real obstacles, and I think there'll be other states that will lower the bar."
This map shows operating data centers in green, centers under construction in yellow and planned one in gray. It's from Cleanview, a company that tracks data-center development.
'One of the clearest at-risk sectors'
To be sure, other analysts see trouble ahead for data-center developers and their investors, as well as for related industries.
"One of the clearest at-risk sectors" after the midterm elections is the data-center industry, said Lale Akoner, a global market strategist at eToro. "Data-center stocks have already reflected some of these potential shocks since July, but the risk does not yet look fully priced in," she added.
"There's potential for the ripple effect of a data slowdown to also impact other sectors - construction, electrical manufacturing and utilities could all face pressure from cross-party political resistance to data-center building," Akoner said.
Billionaire entrepreneur and Republican megadonor Elon Musk commented as well on how the U.S. now looks a lot less welcoming. "Data centers in space looking pretty appealing right now," Musk said in a social-media post.
The Democratic governors-elect viewed as against or skeptical of data centers are Amy Acton of Ohio, Keisha Lance Bottoms of Georgia and Gina Hinojosa of Texas, while the Democratic senators-elect in this camp include Annie Andrews of South Carolina, Sherrod Brown of Ohio and James Talarico of Texas.
Even with these senators as key players in a new Democratic-controlled Congress starting in January, the federal government isn't expected to lead the charge on restricting data centers, given Trump's veto power and his control of key agencies. "Through Jan. 20, 2029, legislation will still require President Donald Trump's signature, while federal regulators remain under an administration focused on AI development and U.S. competitiveness," Bloomberg Intelligence's analysts said.
Ballot measures aiming to restrict data centers so far look to have been overwhelmingly successful in the midterms, according to a tracker called "Data Centers on the Ballot" run by Redbud Consulting. Thirty-seven such measures have passed, six look on track to pass, and two don't have results posted. Just one initiative that's favorable to the facilities was approved, that tracker shows.
Polling ahead of the midterms found that majorities of voters view data centers as bad for home-energy costs, the environment and quality of life. Analysts also have said the facilities have become a visible symbol of the divide between those who are thriving in the current economy and those who aren't.
Trump's defense of data centers has been grounded in how the AI industry is a major driver of the U.S. economy and the stock market, as well as in how the industry is crucial in the nation's competition with China.
Stocks tied to data centers are mixed
Shares of four out of the five major "hyperscalers" were gaining Wednesday, as MarketWatch has reported.
A Goldman Sachs strategist said hyperscalers like Alphabet (GOOG) (GOOGL), Amazon (AMZN), Meta (META) and Microsoft (MSFT) that already have data centers could benefit if future projects are restricted.
But the strategist, as MarketWatch reported, also said the delay or abandonment of some data centers could slow down what is known as the picks-and-shovels trade that's tied to the facilities. Power and cooling providers Eaton (ETN) and Vertiv (VRT) were losing ground, and chip companies SOXX were retreating.
IBM's Cohn also offered theories for the hyperscalers' rallies.
"If you're an Amazon, a Google, a Meta, and you own data centers, and you've got them built, and there's now going to be more scarcity than there was before, the data centers you have going in the ground are actually more valuable today than they were yesterday," he said.
"Also, you take those companies - if they're going to spend less money on data centers, they're going to go back to cash-flow-positive companies."
-Victor Reklaitis
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