Texas election could pressure AI data center trade
The gubernatorial and Senate races in Texas are a pressure point for the artificial intelligence trade that political and financial analysts are paying close attention to ahead of the midterm election. Incumbent Republican Greg Abbott is seeking a fourth term and facing a tough challenge from Democrat Gina Hinojosa along with Libertarian Pat Dixon. In the Senate race, Democrat James Talarico and Republican Ken Paxton are neck and neck . Data centers are at the heart of the elections, with Wells Fargo estimating that 27% of data center gigawatts come from Texas alone. Survey data out of the University of Houston shows more than 80% of Texas voters are worried about their impact on water supply and electricity prices. The survey, which has a margin of error of 2.19%, was conducted Oct. 10-14 and included 2,000 likely voters in Texas. Abbott also halted data-center permitting in September. “Texans must come first,” he said. Depending on how the elections shake out, they could put even more pressure on an AI trade that has been floundering of late amid growing worries about financing and valuations. The Nasdaq 100 tumbled into correction territory this week, down 10% from a record set last month. .NDX 3M mountain NDX in correction territory “The worrisome outcome here would be that not only does Talarico win the U.S. Senate seat, but you have Gina Hinojosa defeating Abbott. That’s where the magnitude for the negative implication on the AI trade matters,” John Sonsalla, president at Washington Analysis, told CNBC. Julian Emanuel, strategist at Evercore ISI, made a similar observation. “The health of the ‘AI Revolution’ will be influenced by the TX Governor’s Race, where Sarah Bianchi notes that [Republican] Abbott is likely to lift the Data Center Moratorium whereas [Democrat] Hinojosa is expected to maintain it,” he wrote, referring to a separate analysis by the bank. Over the long term, the AI trade may be too big of an economic shift to be fundamentally altered by one election. But over shorter time horizons, it’s more likely to be subject to further volatility. It’s already undergone up-legs and down-legs over the past few years. The trade is wobbling as concerns about frontier model profitability, capital expenditures, corporate cash balances, debt levels among smaller cloud companies and macroeconomic factors weigh on investor confidence. The PHLX Semiconductor index ( SOX ) is down about 19% over the past month. The Global X AI and Technology ETF ( AIQ ) is down about 10%. In addition to uncertainty around Abbott’s moratorium, other data center policies are on the line in Texas. Talarico has proposed ending certain tax subsidies while amping standards on labor, the environment and electrical grid usage, according to The Texas Tribune . But while big Democratic wins at the state and local level could indeed pressure the data center component of the AI trade, it could be beneficial to AI companies at the federal level. “Efforts to try to protect industry and to try to fence off [or] undercut Chinese competitors are likely to pick up considerably, because that will be a huge priority for a Democratic Congress or a Democratic Senate,” Rob Rains at Washington Analysis told CNBC. Analysts also see President Trump as an ally to the AI trade who is expected to use his legislative veto power against any law that could hamstring technological investment in the long term. “Given Trump’s tech policy (‘Stock Market Up!’), we expect he would kill – via veto – any ‘aggressive’ AI model safety law that creates material risk to the AI trade. So considering that reality, it will be interesting to see whether Democrats pursue an AI safety law that Trump could live with or push through AI messaging bills aimed at helping them win all of Washington in 2028,” Paul Gallant at TD Cowen wrote in a Tuesday note to clients.
