U.S. Data Center Election Risks Could Impact $2.5T AI Investment

Wall Street firms are scrutinizing elections, including contests that determine local utility commission membership, for risks to data center construction. Unfavorable election results could bring restrictions that interrupt major projects and unsettle AI investments supporting the stock market and the U.S. economy. An October analysis by research firm Cleanview says 10 governors' races will shape rules affecting 67.4 gigawatts of planned data centers. Cleanview values that planned AI infrastructure investment at $2.5 trillion. The planned capacity exceeds the capacity already operating in the United States.

Ariana Salvatore, Morgan Stanley's head of U.S. public policy research, says investors are examining every aspect of the issue. Salvatore identifies governors' races as particularly important to monitor. State leaders have the clearest direct authority over construction. Opposition to data centers is visible nationwide. Maxwell Shulman, a research analyst at consulting firm Beacon Policy Advisors, says the opposition matters most where extensive planned construction coincides with competitive statewide elections featuring candidates with different positions.

Texas accounts for 25% of planned data center construction. Democrat Gina Hinojosa is running against Republican Gov. Greg Abbott. Hinojosa favors a moratorium on new data centers until stronger rules are in place. Abbott has introduced a limited pause in permitting. However, critics have documented permits continuing to advance. Shulman ranks Texas as the most important state to watch.

Investors face project-specific risks, including restrictions before construction starts that could cause delays and threaten loans or bonds. Morgan Stanley notes that slower AI construction could benefit credit markets by reducing borrowing requirements and debt supply. Tougher regulation would require hyperscalers to address political challenges across the country, but hyperscalers should generally remain resilient. Smaller AI businesses face greater risks, especially neoclouds already experiencing rising costs and retreating investors.

Clean energy investors are also monitoring the elections. Brandon Hurlbut, co-founder of climate technology investment fund Overture VC, says data center construction generates substantial demand for services from Overture's portfolio companies. Hurlbut says a construction slowdown would erode some of that demand.

Morgan Stanley projects that a Democratic midterm sweep would produce the worst outcome for AI investor sentiment, particularly alongside state and local wins by anti-data center challengers. Even that result would not necessarily cause a widespread stock sell-off or bring AI spending to an end.