Voters took out their frustration on artificial-intelligence data centers at the ballot box on Tuesday. On Wednesday, investors punished shares of the companies that provide electricity to the giant facilities.
Newly elected governors in states like Texas are promising to pause data center development, and dozens of communities voted to ban the facilities outright. That complicates the backdrop for tech companies, which were already facing delays in securing the permits and power equipment to get their facilities up and running.
But the problem goes well beyond tech. The power companies that serve the facilities were getting hurt even more. Shares of power companies with operations in multiple states were dropping: Maryland-based Constellation Energy, the country's largest electricity generator, fell 6.5%. Utilities in states where voters rejected data centers were falling. That includes American Electric Power, which operates in Ohio and Texas, where Democrats won races for governor after advocating for pauses on data center construction. Its stock dropped 1.8% Wednesday.
Companies that supply specialized power systems to data centers plummeted even more. Solaris Energy Infrastructure and Innio stocks were both down 20% at points on Wednesday. And companies that make power equipment, like natural gas turbines that power data centers, also fell hard. Shares of GE Vernova, the largest turbine-maker, dove 10%. Caterpillar, which has its own burgeoning turbine business, dropped 6%.
Dozens of local proposals to put data center development on hold passed in communities throughout the country. As of Wednesday, nearly 40 proposals to limit data centers in communities had passed, with an average of 77% voter support, according to the website Datacentersontheballot.com.
Even more importantly, Democrats won races for governor in key states -- including Georgia, Ohio, and Texas -- after pledging to limit data center construction.
The governor's race in Texas, which has more prospective data center construction than anywhere else in the country, is "by far the most important election result," argues Morgan Stanley analyst Stephen Byrd.
Companies like Oracle, OpenAI, Coreweave and Amazon.com have flocked to the state to put up data centers, due to its vast energy resources and business-friendly regulations.
Utilities including Sempra Energy, American Electric Power, and Centerpoint Energy were expected to profit from the trend, as the data centers draw an ever-increasing amount of power.
But now there's a serious hitch in those plans. Texas Governor-elect Gina Hinojosa's victory in the race was a surprise. She has promised a pause on data center development so the legislature can write new rules to limit its impacts on water and power bills.
Current Gov. Greg Abbott has already instituted a temporary moratorium, but he had been expected to lift it soon. Hinojosa can extend the pause by executive order, and appoint utility regulators to enact stricter regulations, Morgan Stanley analyst Stephen Byrd said in a note on Wednesday.
In some cases, the selloff in power stocks might be overdone. Among the stocks facing the largest blowback Wednesday was Vistra Energy, which owns a suite of natural gas power plants in Texas. It was down 13% in midday trading. Byrd wrote that Vistra's selloff had gone too far; he values its existing business at $180 a share, 49% more than the current value of the stock.
But it isn't just Texas that will be a problem for tech companies looking to put up data centers. Georgia's and Ohio's governors-elect have also said they'd enact moratoriums on new construction. Georgia Governor-elect Keisha Lance Bottoms has said the pause could last one to six months.
In addition, Democrats won control of the public utility commission in Georgia, which governs what investments utilities can make. Shares of Georgia power company Southern Co. fell 1% on Wednesday.
The blue wave, coupled with supply shortages, means that tech companies simply might not be able to build all the data centers they say they need to build their AI systems.
"The continuing trend towards data center pushback reinforces our concern that there will be insufficient data center capacity in the U.S. by 2028," Byrd wrote.
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