The midterm elections took place in the US this week with the Democratic Party securing 253 seats in the House and 54 seats in the senate. However, the results have stoked fears that newly elected governors and members of Congress who ran on promises of slowing or outright pausing data center developments will make good on those promises, sending US markets into a flurry of activity over the last few days.
Days after the elections, Wall Street experienced a rout that wiped out approximately US$ 2.5 trillion in market value as fear took hold of investors. CNN reports that the tech-heavy Nasdaq fell 5.52 percent, suffering its worst trading day since April 2025, when President Donald Trump revealed sweeping tariffs. The S&P 500 and Dow Jones Industrial Average also posted their worst day since those tariffs were unveiled, falling 4.36 percent and 3.44 percent respectively.
Red goes Blue
Around 40 percent of pending data center capacity in the US now sits in states where newly elected governors have promised voters they would stop or pause data center construction according to data from Cleanview. Concerns are most prominent in Texas, where Governor-elect Gina Hinojosa has called for an immediate moratorium on data center projects and slammed outgoing governor Greg Abbott’s approach to oversight of developments in the state. Hinojosa has said that she will halt new projects.
“We will have laws to protect Texans, and we need to stop what we are doing with data centers until we have those protections,” Hinojosa said on the campaign trail.
While Hinojosa takes office on January 19, 2027, her moratorium will depend on the Texas Legislature, which convenes that same month.
Approvals in the state are already largely on hold, after Abbott paused data center approvals at two state agencies in August so that data could be audited, a review expected to wrap up by the end of the year. Hinojosa’s other priorities include requiring union labor on projects, protecting water supplies, ending nondisclosure agreements that limit public tracking of developments, and scrapping the tax subsidies that cost the state billions in sales tax revenue.
In Ohio, Amy Acton, who won, said she supported a conditional moratorium on data centers to ensure that utility costs are covered by developers, union labor is used, and operations commence with full transparency.
“Ohio is open for business, but we are not up for sale. My message as governor will be if you do not meet these conditions, we do not want you in Ohio,” said Acton ahead of Tuesday’s elections.
The governor-elect has also indicated that new data centers in the state should leverage brownfields and not farms or within communities.
According to data being tracked by Redbud Consulting, US citizens overwhelmingly voted to restrict data center developments in their states and communities through measures on their ballots. As of time of publication only the City of Harwood in North Dakota voted to allow data center developments to commence without independent review.
The sentiment is shared across a large number of states including New Jersey, Illinois, Kansas, Maine, and Wisconsin. Citizens are frustrated with data centers which they see as a driver of higher energy prices and artificial intelligence which is seen as a threat to the workforce.
“Investors appear to be recognizing that some newly elected members of Congress and governors are looking to slow the pace of AI infrastructure development. While it seems unlikely that they will be able to stop it altogether, any slowdown would raise concerns because the AI growth story has largely depended on the rapid buildout of supporting infrastructure. That could create uncertainty for many companies exposed to the sector, at least in the near to medium term,” Melissa Brown, Simcorp Global Head of Investment Decision Research, told Reuters.
The data center sector is now bracing for pledges to be honored. However, Dan Diorio of the Data Center Coalition told ABC News, via the Associated Press, that data center moratoriums could lead to communities missing out on tax revenue and payments from technology companies with deep pockets.
Superspreader
Bloomberg reports that the sell-off has started to bleed into Asian markets today where brokers and hedge fund managers have been fielding calls from clients as losses rippled through the market. The MSCI Asia Pacific Index tumbled 5.3 percent on Friday. Japan’s Nikkei 225 Stock Average and Taiwan’s Taiex were both down 20 percent from peak levels.
In South Korea, the Korea Exchange imposed a two-minute cooling period on Samsung Electronics and SK Hynix shares under heavy selling pressure. When those measures were lifted, the Kospi fell further and trading was halted for 20 minutes, Bloomberg reported.
Meanwhile, global funds appear to be heading to India where foreign institutions have purchased more than US$ 3 billion in Indian shares over the last 10 days. The purchases are being led by a shift in AI sentiment with purchases topping US$ 1.9 billion for the week through Wednesday, the highest in more than a year as foreign investors try to stem their losses.
“Unless the war in West Asia re-escalates, this Goldilocks situation could continue for the rupee,” Anindya Banerjee, Kotak Neo head of research, commodity and currency derivatives told Bloomberg. “In that situation, once 94 per dollar breaks, we will see a breakout from a range that has held since April and then a lot of panic dollar-selling could happen from exporters.”
The canary in the server
Last week Reuters reported that Mainland China’s STAR50 index of AI and semiconductor companies fell 40 percent over less than four months, evaporating some US$ 480 billion in market value.
While there were no obvious causes of the decline, the belief is that high prices, tax bills, and the threat of Chinese data center equipment being banned by the US and other nations, have all contributed to the decline according to traders.
Unitree, a robot-maker, saw its value cut in half since August, similarly chipmaker CXMT has lost more than a quarter of its market value in the last months.
The crash in China was not similar to what is playing out in the US now but it did showcase just how fragile the AI bubble can be. The opposition to data centers has been a big part of campaigns during the lead up to the midterm elections but the results were somewhat unexpected given the effect it has had on markets.
A waiting game begins now, and developers and investors will more than likely be looking for ways to engage with governors and senators opposed to data centers in a bid to find some way to get these projects built. Whether the governors and the constituents they represent will budge however, is the question of the hour.