WASHINGTON, Nov 4 — Opponents of data centres were among the biggest winners of the Democrats' landslide wins in the United States (US) midterm elections, pointing to a shifting public mood on artificial intelligence (AI), which investors say may be a possible slowdown of the boom that has propelled US economic growth and stock markets.
The size and breadth of the Democratic wave were still coming into focus. But in gubernatorial races in Texas and Georgia, Democrats who campaigned in part on a moratorium on data centre development won offices that the party had not held for decades.
Investors note that their victories hand political heft to the backlash against the projects, which are at the heart of the AI boom but are loud, thirsty for water, hungry for electricity, and increasingly unpopular with their neighbours.
The results are likely to usher in tougher regulation and could ripple across financial markets where AI stocks were falling on Wednesday; big bets have already started to wobble due to concerns about spending and overcapacity.
"In our view, the significance of these midterm elections is more like a referendum on AI than a referendum on (Donald) Trump.
"If the AI theme is subject to some restrictions, then the US economy, US inflation, and US monetary policy all become very, very uncertain," said Amundi Investment Institute senior investment strategist Aidan Yao, whose organisation is the research arm of Europe's largest asset manager.
Texas sweep
The most stunning ballot-box repudiation was in Texas, which GLJ Research estimates accounts for about a quarter of US data-centre capacity due to come online by 2030.
Democrat Gina Hinojosa ousted Greg Abbott as governor in an upset that ended three decades of Republican rule, while fellow party member James Talarico became the senator-elect.
A conservative, oil-rich state, Texas has worked for years to reinvent itself as a tech hub, attracting companies like SpaceX and entrepreneurs like Elon Musk, who donated more than US$150 million (RM609.5 million) to the Republican campaign.
But even Republicans turned against data centres, which opponents say drive up utility bills, pollute the night sky with lights, and do not create enough jobs or taxes to justify the incentives states pay.
"Data centres in space looking pretty appealing right now. Guess my election-interfering space lasers did not work this time," Musk said on social media after the election.
In Georgia, where commercial real estate services and investment firm CBRE says Atlanta is the most active data-centre construction market in the country, Democrat Keisha Lance Bottoms won the gubernatorial contest, ending more than two decades of Republican control.
The AI trade
AI has been a dominant theme this year in financial markets, driving stocks higher on bets on chip demand while pushing up bond yields as the data centre construction boom boosts economic growth.
Chip and AI firms like TSMC, Samsung Electronics, SK Hynix, and Kioxia fell in Asia — along with bond yields — on Wednesday.
"The Democrats will likely push for greater regulation. The two key risks...have been the return on investment and the financing of the boom.
"Both have likely become more challenging now," said Singapore-based fund manager Vantage Point Asset Management's chief investment officer Nick Ferres.
To be sure, many analysts said a slowdown in data centre construction in the US did not necessarily signal a change in demand for AI or computing power, and some view a roughly eight per cent drawdown in the Nasdaq over the past month as an opportunity to buy.
Still, Ilan Benhamou on J.P. Morgan's equity sales desk in New York called the Texas race "the only thing that matters" in a pre-election note to clients, and investors are taking it as a wake-up call.
"Companies do have to have the social license to operate, and I think the current AI providers really have a public relations crisis right now on their hands.
"They need to define what the social utility is going to be of AI and data centres to Americans, and so far they have been failing to do that," said asset manager TCW's chief executive Katie Koch during a Hong Kong financial summit.
