Midterms Redraw the Map for AI Data Centers: 37 Ballot Restrictions Pass

Thirty-seven ballot measures restricting data centers passed in Tuesday's midterms, and only one pro-facility initiative won approval, according to the "Data Centers on the Ballot" tracker run by Redbud Consulting. Six more restrictive measures look on track to pass; two still lack posted results.

The wave didn't come out of nowhere. Polling ahead of the midterms found majorities of voters view data centers as bad for home-energy costs, the environment and quality of life. Analysts have also called the facilities a visible symbol of the divide between those thriving in the current economy and those who aren't.

Democratic candidates with tough stances toward data centers won gubernatorial and congressional races, from statehouses to the Senate. The governors-elect viewed as against or skeptical of the facilities are Amy Acton of Ohio, Keisha Lance Bottoms of Georgia and Gina Hinojosa of Texas. The senators-elect in that camp include Annie Andrews of South Carolina, Sherrod Brown of Ohio and James Talariko of Texas — wait, no: James Talarico of Texas.

Will spending actually fall? Not according to most analysts

Most analysts aren't forecasting a collapse in data-center development, which is crucial to the booming AI industry. They see spending continuing — at higher cost, and shifted to states and localities that cut deals with developers.

Data-center projects now face greater policy risk, much of it from states and municipalities through moratoriums, permitting restrictions, utility-rate changes and added reporting requirements, said Bloomberg Intelligence analysts. "We don't expect those policies to materially reduce overall U.S. data-center spending, but they could delay, relocate or raise costs for individual projects," they wrote in a note.

Analysts at Evercore ISI and Raymond James reached similar conclusions.

"Democrats winning gubernatorial races in Texas, Ohio, and Georgia — which have a significant share of the U.S. project pipeline — means new pauses and restrictions on data-center development," Evercore's analysts said. "Still, the impact of any pause or moratorium will hinge on the details, such as any grandfathering, and whether projects facing prolonged disruption can relocate to other states."

Raymond James framed the stakes for investors even more directly: "For the AI trade, we believe the greatest risk is not an immediate collapse in capex, but a meaningful — and potentially underappreciated — repricing of the cost, timing and location of the U.S. buildout."

Where do the centers go next?

Gary Cohn, IBM's vice chairman and a former economic adviser to President Donald Trump during Trump's first term, also predicts movement to receptive places rather than a big drop in development.

"Data centers can move from location to location," Cohn said in a CNBC interview on Wednesday morning. "You take a place like West Virginia… there's a enormous amount of natural gas in West Virginia. You can build an enormous amount of electrical generation 'behind the meter,' that won't affect the grid whatsoever, and you can put your data centers in West Virginia."

He added: "Many jurisdictions have somehow found out that data centers aren't so bad — ultimately they bring in tax revenue, and we can pay the teachers more, we can pay police more. Each of these states and each of these jurisdictions is going to have to evaluate on its own, and this is going to be very local. I'm sure there will be some states — they will put some real obstacles, and I think there'll be other states that will lower the bar."

Not everyone buys the soft-landing view. "One of the clearest at-risk sectors" after the midterms is the data-center industry, said Lale Akoner, a global market strategist at eToro. "Data-center stocks have already reflected some of these potential shocks since July, but the risk does not yet look fully priced in," she said.

Akoner also flagged second-order damage: "There's potential for the ripple effect of a data slowdown to also impact other sectors — construction, electrical manufacturing and utilities could all face pressure from cross-party political resistance to data-center building."

Elon Musk, the billionaire entrepreneur and Republican megadonor, put it more caustically: "Data centers in space looking pretty appealing right now," he said in a social-media post.

What about Washington?

Even with the new Democratic senators as key players in a Democratic-controlled Congress starting in January, the federal government isn't expected to lead on restrictions. "Through Jan. 20, 2029, legislation will still require President Donald Trump's signature, while federal regulators remain under an administration focused on AI development and U.S. competitiveness," Bloomberg Intelligence's analysts said. Trump has defended data centers on the grounds that AI drives the U.S. economy, the stock market and the nation's competition with China.

How did the stocks react?

Shares of four out of the five major hyperscalers gained Wednesday, as MarketWatch reported. A Goldman Sachs strategist said Alphabet, Amazon, Meta and Microsoft — which already own data centers — could benefit if future projects get restricted.

The same strategist also warned that delays or abandoned projects could slow the picks-and-shovels trade tied to the facilities. Power and cooling providers Eaton and Vertiv lost ground Wednesday, and chip companies retreated.

Cohn offered two theories for the hyperscalers' rallies. "If you're an Amazon, a Google, a Meta, and you own data centers, and you've got them built, and there's now going to be more scarcity than there was before, the data centers you have going in the ground are actually more valuable today than they were yesterday," he said. "Also, you take those companies — if they're going to spend less money on data centers, they're going to go back to cash-flow-positive companies."

The bottom line: incumbents just got richer, new builds got costlier, and the fight has moved to statehouses and zoning boards.