Elon Musk experienced a notable setback in the midterm elections, with Democratic victories, including key races in Texas, occurring despite millions of dollars he invested in Republican campaigns. These Republicans were favored to advance Musk's ambitious data center projects.
Musk's companies, SpaceX and Tesla, saw their shares decline by 2.5% and 3.3% respectively on Wednesday morning. This followed significant Democratic wins, such as James Talarico's historic election as the first Democrat to the US Senate from Texas since 1988, and Governor Greg Abbott's re-election defeat by Representative Gina Hinojosa.
Both SpaceX and Tesla are headquartered in Texas, a state that has become a hub for technology companies due to tax advantages and favorable policies for data centers. Musk, whose net worth is estimated by Forbes to be around $880 billion, has been actively expanding his data center capacity in the state.
He reportedly spent $474 million to support Republican candidates in the midterm elections, with $224 million specifically directed towards Texas campaigns. This substantial investment was seen as a response to concerns that Democratic policies could impede his artificial intelligence-related profits.
Musk humorously reacted to the results on X, formerly Twitter, suggesting that "Data centers in space looking pretty appealing right now," referencing a Democratic initiative for data center moratoriums. He later added, "Guess my election-interfering space lasers didn’t work this time."
Texas has attracted data center development due to its less stringent business and energy regulations, tax incentives, and ample land. According to Wells Fargo, approximately 27% of the planned data center capacity in the US is located in Texas.
However, the prospect of Democrats controlling both chambers of Congress could lead to moratoriums on data center construction, potentially affecting an estimated 800 to 1,000 data center projects nationwide, according to Dan Ives, partner at Yorkville Ives & Co. Ives noted that Democratic control, especially of the Senate, will present significant challenges for AI and tech legislation over the next two years.
"While Trump will likely veto any major draconian AI safety or regulatory laws, this will force the tech industry (Big Tech CEOs) to the negotiating table to try to come up with compromises around legislation in Congress surrounding AI related legislation," Ives wrote.
He identified the situation in Texas as the "biggest worry of the night" for tech investors and leaders. Consequently, shares of "neoclouds"—companies that lease AI computing power—also saw declines, with CoreWeave and Iren falling 6% and 9% respectively. Chip-maker Nvidia experienced a 0.7% dip.
Public sentiment towards data centers appears to be shifting negatively across the political spectrum. A July survey by Public First indicated growing disapproval rates among both Democratic and Republican voters.
A May Gallup poll revealed that 71% of Americans opposed the construction of new data centers in their neighborhoods, compared to 53% opposing new nuclear power plants. This growing opposition has become a significant challenge for major tech firms, as over 200 data center projects were planned in competitive House districts, according to Politico. Companies like Meta and OpenAI have reportedly launched public relations campaigns to address these concerns.
Several state leaders have already implemented restrictions on data center development. New York Governor Kathy Hochul, who secured re-election, ordered a statewide pause on large-scale data center construction in July.