AI stocks fall as Texas governor result raises data center risks

Artificial intelligence stocks came under pressure overnight as Democrats — seen as proponents of data center moratoriums — won big in midterm elections, with a key victory in the gubernatorial race in Texas, a key tech hub.

Futures on the tech-heavy Nasdaq-100 were down 2%, more than double the decline in Dow Jones Industrial average futures. The State Street Technology Select Sector SPDR ETF (XLK) was down 2% on the Robinhood trading platform.

The more direct plays saw bigger losses. High-risk neocloud CoreWeave — which uses borrowed money to build data centers — was off by 7% on Robinhood. Peer Nebius Group fell 4%. Elon Musk's AI data play SpaceX , which is headquartered in Texas, was off by 6%. Oracle lost 4% on Robinhood.

Markets were already anticipating the Democrats to win the House of Representatives and possibly take Senate control. But the Texas governor mansion going to Democrats appeared to be the biggest blow to tech stocks, with shares selling off overnight as signs pointed to Democrat Gina Hinojosa winning.

Hinojosa was the projected winner over incumbent Republican Gov. Greg Abbott, according to the Associated Press.

"The one thing that could really end up moving stuff though would be if Abbott were to lose Texas," said Scott Ladner, chief investment officer of Horizon Investments, earlier Tuesday as results rolled in. "Because there is a legitimate question about, where do you build these data centers?"

"Texas is a fertile ground for that. And if he were to lose, I think that fertile ground is largely barren. So, that's going to be a challenge," Ladner added.

The Democratic win in Texas adds to existing pressure on the bull-market-leading AI trade. The Nasdaq-100 index fell into correction territory to end October as concerns mounted that the growth of data center spending by big hyperscalers and the likes of OpenAI and Anthropic was slowing.

"We believe the equity market reaction from the midterms mostly depends on the outcome of the Texas governor's race — a Dem win could potentially be a left-tail event to the AI trade, warned Ohsung Kwon, Wells Fargo's chief equity strategist.

Democrats were projected to win or retain the governorships in other key data center states: Georgia, Pennsylvania and Ohio. Georgia represents 7% of all the planned U.S. datacenter gigawatts, while Ohio and Pennsylvania account for 5% apiece, estimates Wells Fargo.

Notable investment strategist Michael Hartnett of Bank of America warned earlier this year that Democrats winning the Senate, combined with taking the Texas governorship could lead to a "big slump" in stocks of more than 10% into year-end.

"Data centers went from being a popular economic development tool in 2024 and 2025 to something of a pariah by the time the midterm campaigns gathered steam," wrote the Washington policy team at Optimal Advisory this week. "The midterms are likely to send a message to local and state officials that there is a political upside to blocking, delaying and/or raising the cost of data centers."