As the U.S. midterm elections take place on November 3, Wall Street is closely monitoring the outcomes. Investors are particularly focused not only on congressional races but also on gubernatorial elections and local referendums.
The results of gubernatorial elections in Texas, Ohio, Georgia, and Nevada, along with local votes related to data centers, could significantly impact regulations governing the construction of data centers, which are critical to the artificial intelligence (AI) industry. Growing community opposition to data center construction has made the election outcomes a variable for investment plans of related companies. Analysts suggest that the Korean semiconductor industry, which has benefited from the expansion of AI infrastructure investment in the U.S., may also be affected.
Analysts at RBC Capital Markets noted in a report on November 2 that governors are "at the forefront of AI and data center regulation."
Texas is the region attracting the most attention from the market. Investment bank Jefferies held a client meeting on November 2 focused solely on the potential impact of the Texas election on investors.
Approximately one-quarter of the expected U.S. data center capacity by 2030 is concentrated in Texas. Companies like Oracle, private equity firm Blue Owl, and land ownership firm Crusoe are heavily involved in Texas's AI infrastructure projects.
Jefferies warned that if a Democratic candidate, who has pledged to halt data center construction, unexpectedly wins, it could jeopardize already announced projects totaling 13.3 gigawatts (GW).
In Georgia and Nevada, where Republican governors currently hold office, a Democratic victory could also alter the investment landscape for AI infrastructure. The Democratic candidate in Georgia has promised a statewide moratorium on new data center construction, while the Democratic candidate in Nevada opposes data center development on federal lands.
The Beacon Policy Advisors project that the outcomes of the ten gubernatorial races in this midterm election could influence plans for 67.4 GW of data center construction and corresponding AI infrastructure investments totaling $2.5 trillion.
Local referendums also present a variable. According to the election information agency Ballotpedia, 41 local ballot measures related to data centers will be voted on in 38 municipalities across ten states, including California, Florida, Illinois, Ohio, Kansas, Maine, Nevada, New Jersey, North Dakota, and Wisconsin. Of these, 28 measures propose restrictions or bans on data center construction, while the remaining 13 allow or promote construction.
Unlike state and local regulations, it is expected to be challenging for the federal government to implement direct restrictions on data center construction.
Investment bank JPMorgan noted that former President Donald Trump has indicated he would veto any legislation aimed at limiting AI expansion, and the Democratic Party is unlikely to secure a supermajority in both houses of Congress to override such a veto, making federal-level restrictions on data centers unlikely.
Amid this political uncertainty surrounding AI and data centers, some companies are holding off on issuing billions of dollars in high-yield bonds until regulatory prospects become clearer.
A senior investment bank official told the Wall Street Journal that if U.S. voters do not show overwhelming opposition to data centers, corporate bond issuance is expected to become active again before the end of the year. Some analysts believe that even if new regulations on data center construction are introduced, it is more likely that construction projects will shift to states with fewer regulations rather than reducing overall investment.
There are also expectations that the midterm election results could introduce new variables for Korean semiconductor companies like Samsung Electronics and SK Hynix. Bloomberg reported that South Korea and Taiwan supply advanced semiconductors and essential hardware needed for U.S. data center construction, making them susceptible to changes in U.S. AI investment policies.
If oversight of the AI industry increases, leading to higher costs for data center construction and operation, AI companies may face greater investment burdens and profitability concerns, which could also impact the stock prices of AI-related firms. Delays or reductions in data center investments could affect demand for AI semiconductors, such as high-bandwidth memory (HBM).
However, some analysts have suggested that the election results may not immediately lead to a downturn in the AI industry or a decline in the performance of Korean semiconductor companies. Regardless of congressional composition, global demand for AI computing and related infrastructure investments are expected to remain steady.
Fruqsa Iamthong, head of Asia-Pacific equities at Aberdeen Investments, assessed that Korean and Taiwanese semiconductor companies are key suppliers for long-term AI investments, including U.S. data center construction, and that any impact from the election results is likely to be temporary.
* This article has been translated by AI.
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