Shares of SpaceX and Tesla, both led by Elon Musk, declined in premarket trading on Wednesday after Democrats secured a significant victory in the midterm elections, delivering heavy losses to Republican candidates Musk had backed. SpaceX fell 3.9% while Tesla dropped 3.6%.
Artificial intelligence stocks also came under pressure overnight, as Democrats, widely seen as supporters of data center moratoriums, posted major wins in midterm contests across key data center hubs.
Futures on the tech-heavy Nasdaq-100 were flat, while the State Street Technology Select Sector SPDR ETF (XLK) rose 0.7%. Companies more directly exposed to the data center buildout fared worse: CoreWeave, a neocloud provider that uses borrowed money to build data centers, sank 4.2%, peer Nebius Group lost 1.5%, and Oracle slipped 2.4%.
Markets had already anticipated that Democrats would win the House of Representatives and possibly take control of the Senate. The bigger shock to tech stocks came from Texas, where the governor's mansion went to the Democrats. Shares sold off overnight as signs pointed to a win by Democrat Gina Hinojosa, who was the projected victor 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.
Hinojosa has been outspoken in her support of a moratorium on AI data centers, a position with significant stakes for the industry. According to Wells Fargo, 27% of planned data center gigawatts in the United States is located in the Lone Star State.
The Democratic win in Texas adds to existing pressure on the AI trade that has led the bull market. The Nasdaq-100 index fell into correction territory at the end of October as concerns mounted that the growth of data center spending by big hyperscalers and private AI giants OpenAI and Anthropic was slowing.
Wells Fargo's chief equity strategist, Ohsung Kwon, warned in a report this week that the equity market reaction to the midterms would mostly hinge on the Texas governor's race, saying a Democratic win there could potentially be a "left-tail event" for the AI trade. Democrats were also projected to win or retain the governorships in Georgia, Pennsylvania and Ohio, other key data center states. Georgia represents 7% of all planned U.S. data center gigawatts, while Ohio and Pennsylvania account for 5% apiece, Wells Fargo estimates.
Noted 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," the Washington policy team at Optimal Advisory wrote 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."
