Killing the Golden Goose?

Most investors seem to be behaving as though a Democratic Party capture of the U.S. House of Representatives  and the Senate, including many new officials who campaigned against data centers, especially in Texas, Georgia and Ohio, will at least slow data center developments. Some might fear serious restrictions. 

Texas, Georgia, and Ohio alone account for some 40 percent of planned US data center capacity. By some estimates 45 percent of planned capacity is at risk if all states backing moratoriums are counted.

Texas is the core of the bear case. Texas might represent about 27 percent of planned US data center gigawatts, and its new governor campaigned on a moratorium on approvals until the legislature passes stronger protections. Some Democratic leaders went further and started calling for a national moratorium. 

On the other hand, there are countervailing pressures. So long as President Trump is still in the White House (two more years), any federal data center moratorium would need his signature, and that is quite unlikely.

Overriding such a veto requires two thirds of both chambers, meaning 290 votes in the House and 67 in the Senate, and the Senate filibuster still requires 60 votes for most legislation. Democrats are nowhere near those thresholds. 

Of course, there is some belief the Democrats will seek to end the filibuster rules, so we’ll have to see if that safeguard is removed. 

State level action is the other issue, but something of the same dynamics exist there. In Georgia, Democrats won the governor's office and a majority on the utility commission but Republicans kept the state Senate.

In Ohio, the governor backs a conditional moratorium, but Republicans kept the House and a Senate supermajority. In Iowa, the governor wants to end AI tax breaks, but Republicans still hold both chambers.

At the municipal level, local bans remain an issue.

The issue is how much of the perceived damage is permanent and how much essentially represents a delay. 

The market reacted fairly swiftly, within 48 hours of the election::

• Nvidia dropped 9.3% before recovering slightly (+2.78%) to close around $186.64.

• AMD: Plunged 17.3%.

• Micron (MU): Fell 17.5%.

• Broadcom (AVGO): Slid 10.4% .

• Microsoft (MSFT): Lost 3.6%.

• Tesla (TSLA) & SpaceX: Tesla fell 10.8% and SpaceX dropped 9.1% .

• Neocloud & Data Center Infrastructure Firms: Nebius dropped 15%, Iren fell 17%, and CoreWeave fell 10%.

Pessimists might argue much capacity will essentially be destroyed. Optimists might point out that projects can be moved to other localities. 

There will be at least some truth to the notion that politicians tend to say what they think people want to hear, but do not actually legislate that way. 

And it still remains true that the artificial intelligence industry is driving most of the growth in the U.S. economy right now. According to analysis by the U.S. Federal Reserve, AI-related industries have been driving 39 percent of total GDP growth. Data center sites alone drove three percent of total U.S. GDP growth. 

In the end, politicians will not want to be seen as impeding such economic growth, as much as they wish to be seen as representing constituent views. 

The point is that an argument can be made that all the talk of moratoriums will fail to stop AI data center deployment. The pace may slow, at least for a while. But if needs for compute keep growing, new capacity will have to be added. 

There is something of a tension here between “killing the golden goose” and being blamed if voters find the economy gets worse because of such AI-limiting policies. Pandering to the passions of crowds can be dangerous, in the end.