Democratic blue wave will slow data center construction and force tech to the negotiating table

Democrats seized control of both chambers of Congress as a result of the midterm election Tuesday, flipping at least seven Senate seats in a historic wave that The Washington Post called a rebuke on a scale not seen since 1974. Democrats also flipped more than two dozen Republican-held House seats, with some races still undecided.

Democrats’ victories were fueled by concerns over affordability and the Iran war, as well as President Trump’s unpopularity. Yet another factor also played a role: voters’ widespread concern over the rapid buildout of data centers across the country.

Among the Democratic victories, the elections of three governors who campaigned on restricting data center development, Gina Hinojosa in Texas, Amy Acton in Ohio, and Keisha Lance Bottoms in Georgia could be consequential for the AI industry’s future expansion.

While members of Congress would need to pass legislation, and potentially overcome a veto by President Trump, to impose new restrictions on data centers, the incoming Democratic governors have more tools at their disposal, including the power to influence permitting, regulation, and tax incentives at the state level, although some actions may require the approval of state legislatures.

We have already seen Gov. Abbott wield the power of the governor’s office to take action on data centers in Texas, the state with more data center capacity operating and under construction than any other, according to Baxtel, and which is projected to hold nearly 30% of U.S. data center capacity by 2028, according to a Bloom Energy report.

Abbott, who was defeated Tuesday by Governor-elect Hinojosa, initially supported data centers, yet he adjusted his stance earlier this year amid widespread concerns over their resource use. In June, Abbott directed state regulators to develop measures requiring data centers to cover the costs for the energy infrastructure they use for their operations. In August, he halted new grid connection approvals for data centers while regulators conducted an audit of proposed projects. And later directed state officials to enforce water-use reporting requirements and instructed regulators to pause new data center permits until audits on their electricity and water use were completed.

Hinojosa, for her part, said Gov. Abbott’s tough talk on data centers was “nothing more than an election year stunt.” Hinojosa promised in the run up to the election that, were she to win, she would impose a moratorium on data center construction and eliminate subsidies and tax breaks awarded to major data center developers.

Governor-elect Amy Acton in Ohio made similar promises, calling for a conditional moratorium on new data centers unless developers agree to cover all their utility costs, use union labor, and meet environmental standards. Meanwhile, in Georgia, Governor-elect Keisha Lance Bottoms also promised a temporary statewide pause on new data center construction to assess the industry’s impact on electricity bills, communities, and the environment.

Across eight major North American markets, a record 7,481 megawatts of data center capacity was under construction during the first half of 2026, a nearly 25% increase from a year earlier, according to commercial real estate firm CBRE.

And yet, taken together, the election of these three governors represents a “new reality” for tech companies that have been pouring billions of dollars into data center construction and will now need to reassess, said longtime tech analyst Dan Ives, of merchant banking firm Yorkville Ives.

While Trump may veto any draconian AI safety or regulatory laws passed by a Democratic-controlled Congress. The newfound influence of AI skeptical politicians in Congress will force tech companies to come to the negotiating table to reach compromises on AI-related legislation, Ives wrote in a Wednesday note.

“Tech needs to adjust and focus on a slower pace of this AI rollout,” he said in an email.

Shares of companies involved with the AI compute and data center construction fell Wednesday including CoreWeave, Applied Digital, and Cipher Digital. Yet, the overall market was up as of afternoon trading, with the S&P 500 up 1.82% and the tech-heavy Nasdaq up 1.94%. 

Ives said in the note Wednesday that while tech companies may now face obstacles to building out their data center capacity, the Democratic wins could actually be a positive for tech stocks as it will likely force hyperscalers, like Google, Amazon, and Microsoft, to slow down their capital expenditures, which are expected to hit at most $828 billion in 2026.

“The Street still is way underestimating the future revenue growth and profitability that AI will bring to the tech world (and other industries) over the next few years,” he wrote. “Now it will happen at a more measured pace which is likely a good thing in the eyes of many investors…and the market will digest this news and move forward.”