Wall Street braces for midterms’ impact on data centers
Public opposition to data center construction and negative sentiment about artificial intelligence in general are growing, setting up AI as one of the defining political issues of the 2026 midterm elections, set for Nov. 3. Wall Street has gone all-in betting on AI, with total capital expenditures expected in excess of $5 trillion by 2030 . That spending is accelerating even as the technology remains largely unproven in terms of profitability and productivity . With electoral and financial forces at odds, equity markets and national politics could be on a collision course in November over the fate of the AI buildout, and some analysts say the fallout could persist well beyond the election. “What I consistently hear from investors is that the opposition to data centers is really about the political backlash and that after the midterms things get a lot better. But I think that after the midterms, things get worse,” Ed Mills, a political analyst at Raymond James, told CNBC. “That is a huge blind spot for the market.” Others take a more measured view while admitting to the possibility of a market dip if Democrats win big, since Democrats are generally viewed to be more critical of the AI buildout than Republicans. “[We see the] midterms themselves producing muted results across the broader market, although we see a potential knee jerk near-term reaction if Democrats outperform expectations,” analyst Ariana Salvatore at JPMorgan wrote in a report last month. Legislative prospects Some kind of AI law is expected to come out of the next Congress, though it’s not clear yet what it will look like, how it will be delivered, or whether it would clear the president’s desk. AI companies have already opened themselves up for the possibility of regulation, calling for a collective slowdown due to product safety concerns. Many on Wall Street think the appeal is less about safety and more about establishing anti-competitive protections that will steer the industry toward a duopoly comprising the leading proprietary model makers, Anthropic and OpenAI. Legislation could take many different forms, including utility bill protections for consumers, a measure that already made it through the House before getting spiked by Democrats in the Senate on the grounds that it was ” toothless .” A federal moratorium on data center construction, similar to the one enacted by New York , is another proposal that analysts are discussing. An AI tax has also been proposed, with advocates saying it would allow for partial public ownership of the technology while reducing any harmful effect on the tax base. That issue has attracted international attention as AI threatens to redistribute national income toward profit and away from wages, potentially eroding labor income as a source of tax revenue. “So much of the AI future is about these multinational companies trying to attribute their earnings to their [intellectual property] rather than to the productivity of their workers, and that’s going to mean huge tax base erosion,” Jeremy Bearer-Friend, a George Washington University tax professor whose work became the basis for the AI tax proposal, told CNBC. Other proposals include a measure that would hold AI developers legally liable for harms committed by their software, and a ” governance framework ” from the Senate Commerce Committee that builds on a 2017 legislative plan . Sen. Maria Cantwell, D-Wash., who backed the original plan and has since pursued AI policy including safety standards, independent testing and consumer protection, has called for an “AI-era workforce initiative modeled on the GI Bill.” Gridlock scenario “Democrats are more opposed [to data center construction] than Republicans,” Mills, at Raymond James, said, adding that “it looks to be a good year for Democrats.” If Democrats take even one chamber of Congress, that will translate into gridlock in Washington, where a Republican White House wields veto power over any assertive legislation, which would reassure the tech industry. President Donald Trump is closely allied with Big Tech. He has received hundreds of millions of dollars in political donations from Silicon Valley, which has been described as a dedicated donor class for the administration. Trump featured tech moguls prominently at his inauguration and received a 24-karat gold and glass statue from Apple CEO Tim Cook. The Trump administration claims to already have something of an AI framework , but has declined to share it publicly. This has drawn criticism from two Democratic senators , who say it’s been “shaped in secret by a handful of executives at self-interested trillion-dollar companies.” What’s been released concerning the draft framework is heavily redacted . “What we want to learn is, how is the White House [deciding] which frontier AI models get released to the public and which don’t? Under what terms or conditions?” Deana El-Mallawany, an attorney with nonpartisan advocacy group Protect Democracy, told CNBC. The group filed a Freedom of Information Act request for the release of the policy document. In terms of potential legislation, the White House veto means that any new AI law may get tacked onto a higher priority, bipartisan piece of legislation, such as an appropriations bill, a bill to raise the debt ceiling, a defense authorization or a tax extension package. But despite the assumed protection from the White House, anti-AI public sentiment could still force an atypical level of agreement in Congress on the subject of AI. “Could we see 67-plus senators vote in favor of [a data center moratorium]?,” Mills asked. “That is veto-proof … I don’t think that’s necessarily a base case, but that’s a much higher probability than the market is currently baking in.” Races to watch Texas, Ohio, Pennsylvania and Michigan — all hives of data center activity — are the most important states to watch for races that could affect the AI buildout. In Michigan, William Lawrence, a Democratic candidate in the 7th Congressional District race, supports a nationwide moratorium on data center development. In Texas, Democratic U.S. Senate candidate James Talarico supports getting rid of data center tax exemptions , setting federal minimums for expedited permitting and tightening water use requirements. In Pennsylvania’s 8th Congressional District, the race between GOP candidate Rob Bresnahan and Democrat Paige Cognetti will have consequences for more than a dozen proposed data centers, according to a report last month from JPMorgan. The Senate race in Ohio was the subject of an August memo from the National Republican Senatorial Committee in which the group warned that Democrats were winning on the issue of data centers and that if Republican incumbent John Husted loses, it could cement data center opposition in the future, according to Axios . “If [Husted] loses and data centers get the blame, politicians across the country will take notice — and they will not go near the next one,” the memo says, according to Axios. “This has become a sleeper issue for the entire election cycle.” Governors’ races could be even more consequential than legislative races, with match-ups in Florida, Georgia and Nevada referenced by multiple analysts. Deutsche Bank said in an election outlook that “neither party has a clear edge with voters on economic, military or AI” but noted that just “a few seats can reset policy dynamics.” Salvatore, at JPMorgan, said in September that the midterms could lead “the market to question the durability of the current policy path,” leading to an “initial risk-off reaction function either before mid-terms if polling/prediction markets convincingly point in this direction, or post midterms.” “Why not a more sustained risk-off move?” she said. “The President has veto power and the 2028 Presidential election would still be two years away.”
