A Blue Tsunami in State and Local Government Elections May Have Just Driven a Dagger Through the Artificial Intelligence (AI) Data Center Trade

While Democrats are celebrating the midterm elections that enabled them to reclaim control of both the U.S. House of Representatives and the U.S. Senate, they may still be unable to make big changes over the next few years.

That's because President Donald Trump still holds veto power that requires a two-thirds vote in both the House and Senate to override. Democrats didn't obtain 60 Senate seats, so it's unlikely they'll be able to override the filibuster, either.

That said, Democrats performed incredibly well on the state and local levels, including in areas that haven't gone blue in decades. The state and local "blue tsunami" may have just driven a dagger through the artificial intelligence (AI) data center trade.

Image source: Getty Images.

Anti–data center sentiment ruled midterms

Voters elected Democratic governors in Texas and Georgia, which haven't seen a blue governor in decades. According to the Associated Press, Democratic governors will preside in at least 28 states starting in 2027.

Furthermore, according to the National Conference of State Legislatures on Nov. 6, polling data suggest Democrats will flip at least 11 state chambers (House or Senate), although many results still aren't final.

Many Democratic governors and state lawmakers have promised either to ban data centers or to advocate for more regulation of them.

For instance, according to Reuters, incoming Texas Gov. Gina Hinojosa campaigned on halting new data center approvals until state lawmakers could pass laws "to protect Texans, so that Texans have a seat at the table to decide if and how data centers come into our community."

Hinojosa defeated incumbent Gov. Greg Abbott, who had been perceived as more friendly to data centers until he flipped his position on the matter in the final month before the midterms. Georgia's soon-to-be governor, Keisha Lance Bottoms, also campaigned on a data center pause.

Dozens of municipalities also approved nearly all the data center moratoriums on midterm ballots.

While data centers do provide jobs, they can also drive up electricity costs and use tremendous amounts of resources, such as water. At a time when people are grappling with costs and worried about AI safety and AI taking their jobs, data centers are clearly not popular.

In stark contrast, President Donald Trump believes that AI and data centers should not be paused because the U.S. is in an AI race with other countries.

It may not kill data centers, but it could slow them down significantly

Now, I don't think many state and local governments will permanently ban data centers. It's tough to outright ban an industry, especially if it can provide economic value. That said, state and local governments can make the cost of doing business much higher and significantly delay them.

The hyperscalers may be able to afford to wait, but some of the neoclouds have deteriorating balance sheets, and the delays could prove costly for their stocks.

Consider a company like Elon Musk's Space Exploration Technologies, which has significant data center capacity and plans to build more. Musk reportedly spent $224 million on Texas races in favor of Republican candidates.

On SpaceX's most recent earnings call, on Oct. 20, Musk said he expected the company to build and bring online an incremental 10 gigawatts of AI compute in 2027 alone, even suggesting that the number could be closer to 20 GW.

While it's hard to know how much of SpaceX's planned data centers are already underway, local restrictions could slow the build-out, and data centers are the company's biggest revenue generator right now and a near-term driver of growth.

If SpaceX experiences further delays and analysts revise revenue and earnings estimates downward, that could be a tough blow to the stock.

Building data centers may become more expensive, and investors are already concerned about whether such spending will yield adequate returns will likely be even more worried.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool recommends Space Exploration Technologies. The Motley Fool has a disclosure policy.