New Democratic Governors Target Data Centers

The Nasdaq fell 11% below its all-time high on Thursday as investors reacted to the election of state leaders who oppose artificial intelligence data centers. The decline reflects fears that construction costs will rise and borrowing rates will increase in the coming year.

Democrats flipped governorships in Texas, Ohio, Georgia, Nevada, and Iowa. In those races, candidates frequently cited high energy costs and water usage as reasons to restrict server warehouses. Clayton Tucker, the first Democrat elected as Texas agriculture commissioner since 1986, said his pledge to fight data center development was critical to his victory. He noted that ranchers worried the projects posed an existential threat to dwindling water supplies.

Campaign finance data from AdImpact shows that campaigns spent more than $380 million on television ads mentioning data centers. Democrats outspent Republicans on the topic by a more than 3-to-1 ratio. Data Center Watch reported that 32 of the 34 victorious gubernatorial candidates support stronger regulation or restrictions. Twelve of those candidates support bans or moratoriums.

David Crowley, the governor-elect of Wisconsin, said he is discussing specific proposals for his first term. He supports requiring developers to disclose water and energy consumption. He also wants to ensure communities support projects before they proceed and to insulate ratepayers from the energy costs of the facilities.

Morgan Stanley analysts described the election of Gina Hinojosa in Texas as the most important result for the industry. Hinojosa has said she would block a permit for a data center if it was not a good deal for Texans or if residents had not received a say. In Ohio, governor-elect Amy Acton pledged to block projects that do not meet certain standards. The firm warned that new state regulations could split the country into areas open to new data centers and those without them.

Voters in local referendums also rejected data center expansion. Redbud Consulting tracked 47 referendums in 44 municipalities across 12 states. Restrictions were approved in 44 of the 45 elections where counting was complete. About three-quarters of U.S. voters oppose the construction of a new data center in their community, according to the AP Voter Poll.

OpenAI published a framework on Thursday asking policymakers to write clear rules for how the industry builds. The company stated that lawmakers should establish rules to advance responsible investment and protect residents. Dan Diorio of the Data Center Coalition said the industry expects new leaders to deliver on their promises but warned of real-world consequences, such as host communities missing out on tax revenue.