Midterms

A.I. Data Centers and Labs Face a Setback After Democrats’ Win

co-produced by AI04. November 2026, 17:36

Servers in one of IREN's data centers. © IREN

Texas wanted to become the “epicenter of AI development.” Now the bulldozers could fall silent there of all places. In the U.S. midterm elections, Democrat Gina Hinojosa defeated Republican Gov. Greg Abbott, partly on a promise to halt the construction of new data centers. She is the first Democrat to lead Texas in more than 30 years. Because the state accounts for 27 percent of planned U.S. data center capacity, according to Wells Fargo, the result hits the A.I. boom at its most sensitive spot.

The stock market got the message. After the Democrats’ sweep, CoreWeave fell about 7 percent, Iren about 6 percent and Oracle 4.3 percent. Cipher Mining, a Bitcoin miner and data center operator that relies heavily on the Texas grid, plunged 17 percent. SpaceX also lost about 7 percent. Elon Musk, one of the big losers of election night, wrote on X that “data centers in space [are] looking pretty appealing right now.”

What Ms. Hinojosa Is Planning

During the campaign, Ms. Hinojosa promised an immediate pause on new data centers, accusing developers of “raising our utility rates and depleting our water,” according to Bloomberg. Specifically, she wants to:

Halt approvals: New projects would be put on hold until lawmakers pass rules.
Involve communities: Local residents would have a say in new sites.
Protect power bills: Households should not pay for grid expansion driven by data centers.
End tax breaks: Tax incentives for the industry would go, along with stricter requirements for water and power use.

“The voters have delivered a mandate for change, and it is change they will get,” Ms. Hinojosa said on election night. She takes office in January.

A pause in Texas would not be entirely new, though. In September, Mr. Abbott himself directed the state’s environmental agency, the T.C.E.Q., to halt all permits for data centers. Ms. Hinojosa called it an “election year pause.” An analysis by FracTracker and Public Citizen found 35 permitting actions by the agency for data center projects in the weeks that followed, including preliminary approvals for gas power plants meant to supply data centers. Mr. Abbott’s spokesman said no permits had been approved.

Who Now Calls the Shots in Texas

Whether the promise becomes law does not depend on Ms. Hinojosa alone. But the balance of power in Austin shifted sharply on election night:

Governor: Like her predecessor, Ms. Hinojosa can direct the environmental agency to hold back permits. For lasting rules and an end to tax breaks, she needs the Legislature.
Lieutenant governor: Democrat Vikki Goodwin defeated longtime incumbent Dan Patrick. The office is especially powerful in Texas because it presides over the State Senate and shapes its agenda. However, Senate Republicans could curb the lieutenant governor’s authority over committee appointments at the start of the session.
State Senate: Only 16 of the 31 seats were up for election. Before the vote, Republicans held 20 seats.
State House: Control was still undecided the morning after the election. Democrats needed a net gain of 14 seats; they had flipped six and were leading in more than a dozen other races.
Statewide offices: Democrat Nathan Johnson will become attorney general, and Democrat James Talarico will represent the state in the U.S. Senate.

Texas is not alone in changing course. Nationwide, more than 30 ballot measures to restrict data centers passed, according to Semafor. Newly elected Democratic governors in Georgia and Ohio have also called for construction pauses. Goldman Sachs estimates that short-term moratoriums at the state and local level could affect about 45 percent of planned U.S. data center expansion, according to Bloomberg.

New York Led the Way

New York set the precedent. In July, Gov. Kathy Hochul issued an executive order imposing the first statewide moratorium on new hyperscale data centers. The state’s environmental agency will issue no new permits for up to a year while the state develops environmental standards for the industry. Ms. Hochul also wants to repeal the sales tax exemption for large data centers. “As data center development threatens to hike up utility bills,” it is her “responsibility to take action and lead,” she said.

The difference from Texas is scale. New York is not a major hub for A.I. data centers; Texas is. According to SemiAnalysis, almost a third of the U.S. data center capacity due to come online by 2028 is to be built there. Gordon Johnson of GLJ Research sees about 13 gigawatts directly at risk. Projects that already have power, permits and construction underway are likely to proceed. Projects without environmental permits could slip by 12 to 18 months, and others could move to Louisiana or Oklahoma.

Trump Gave the Industry Free Rein

At the federal level, the contrast is even sharper. Since taking office, President Trump has avoided binding A.I. rules and relied on the industry to regulate itself. On his first day, he revoked President Joe Biden’s A.I. executive order, which had required safety testing for the most powerful models. With his A.I. Action Plan in July 2025, he exempted certain data centers from environmental reviews and directed agencies to identify rules that slow A.I. development. “We need to grow that baby and let that baby thrive,” Mr. Trump said at the time. “We can’t stop it with politics, we can’t stop it with foolish rules.”

The reasoning was economic: Investment in A.I. and data centers is seen as one of the most important growth drivers of the U.S. economy, and the race with China was not to be slowed down. In December 2025, Mr. Trump went a step further, signing an executive order directing the Justice Department to challenge state A.I. laws. The White House framework released in March states that states “should not be permitted to regulate AI development.”

What the Democrats Are Promising

In Congress, the Democratic victory is even bigger than expected. According to Shakeel Hashim of the A.I. policy newsletter Transformer, Democrats may end up with 56 Senate seats and as many as 261 House seats, by some metrics the party’s best result since Watergate. That allows them to set the agenda, hold hearings and launch investigations. There is no unified A.I. plan yet, but there is a series of proposals:

Investigations: Representative Robert Garcia, the expected chairman of the House Oversight Committee, has told the administration to prepare for investigations. Senator Elizabeth Warren has written to Anthropic’s chief executive, Dario Amodei, about the risks the company disclosed in its I.P.O. prospectus.
Select committee: Representatives Ted Lieu and Bill Foster have proposed a select committee on A.I. with subpoena power. Representative Hakeem Jeffries, the Democratic leader and likely next speaker of the House, spoke of an “AI safety crisis” in September and rejected unenforceable voluntary industry agreements as insufficient.
Empowering the states: Senator Ed Markey wants to override Mr. Trump’s order against state A.I. laws with legislation. “Congress should not give Big Tech a multi-year holiday from state oversight,” he said.
National moratorium: Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez introduced a bill in March for a nationwide pause on building A.I. data centers.

After the election, Mr. Hashim considers it much more likely that strong legislation on the most powerful A.I. models will pass in the first few months of next year. With 56 Senate seats, Democrats would need only four Republicans to reach the 60 votes required, and the scale of the defeat is likely to embolden more Republicans to break with Mr. Trump. Industry PACs also fell flat on election night: Leading the Future lost in South Carolina, the only competitive race it played in, while PACs focused on A.I. safety won big.

Mr. Hashim expects a bill stronger than the FRONTIER Act from Representatives Jay Obernolte and Lori Trahan, with tough safety standards, mandatory testing and approval of the most powerful models, and narrower preemption of state laws. He considers strict liability for developers or data center moratoriums possible as well. Any such bill would still need Mr. Trump’s signature. Mr. Hashim thinks that, too, has become more likely, because A.I. companies, wary of upsetting Congress and preparing for a possible Democratic president in 2028, are likely to tone down their opposition to regulation.

Why a Construction Freeze Won’t Be Easy

Even among Democrats, a blanket freeze is contested. “Rather than blanket moratoriums, we should be learning from the work of our state and local counterparts,” said Representative Frank Pallone, the top Democrat on the House Energy and Commerce Committee. Senator Maria Cantwell is pushing for a bipartisan national A.I. framework that “both leads on innovation and protects consumers.” And Senator Chuck Schumer, who is expected to lead the new Senate majority, focused mainly on public investment in his 2024 A.I. road map.

Big Tech has also reacted more calmly than the neoclouds: Alphabet, Meta and Microsoft largely held steady on the stock market after the election. And whether Mr. Trump will actually sign an A.I. bill remains an open question: Without his signature, Democrats would need two-thirds majorities in both chambers to override a veto. Until then, much will be decided in the states, and above all in Texas.

It also remains to be seen how the new situation will affect Anthropic’s I.P.O. The developer of Claude plans to list on the Nasdaq before Thanksgiving, and investors are talking about a valuation of up to $1.5 trillion. Nearly all of the roughly $895 billion in commitments Anthropic has made are for computing power and infrastructure, which is exactly what new data centers are supposed to provide.