Tuesday's US midterms sent a warning to investors betting on the AI boom. Democrats won majorities in both the Senate and the House, with victories reaching deep into Republican strongholds such as Texas, setting the stage for gridlock for the rest of President Donald Trump's final term. Even so, passing laws in Washington will be hard while Trump holds his veto, as OCBC currency strategist Moh Siong Sim noted. But a result in Texas could have a more immediate impact. Democrat Gina Hinojosa won the race for governor, beating Republican incumbent Greg Abbott by 53% to 46%, after promising a moratorium on new data centres until stronger protections are in place. She will be the state's first Democratic governor since 1995, and her four-year term begins in January 2027.
Why Texas matters for AI data centres
Data centres are the buildings full of computers that power AI, and Texas is one of the biggest markets for new projects. Tapas Strickland of Moomoo ANZ says Texas and Georgia together "make up about a third of all AI data centre spend and projects". But data centres need vast amounts of electricity and water, raising concerns about supplies and household bills, and local leaders and residents have also raised concerns about noise, light and water pollution.
A pause on some approvals was already in place under the outgoing Republican governor: Abbott ordered it in August, a month after saying he wanted to ban data-centre development in rural Texas neighbourhoods. Hinojosa calls that pause "in name only" and wants a moratorium until lawmakers introduce stronger rules. She says Texans should "have a seat at the table" when it comes to deciding whether data centres come into their communities, and that there is "no protection for water or electricity costs".
All Weather Capital's Nick van Rensburg thinks the market is underestimating how much restrictions in Texas could slow the broader investment in AI infrastructure. Speaking at All Weather's morning meeting on Thursday, he described it as a severe kickback for AI capex, the money companies spend building that infrastructure.
What it means for investors in AI shares
That matters because investors own companies across the AI supply chain, from chipmakers to data-centre builders. If projects are delayed, orders for equipment and other services could be pushed back too, slowing the growth investors expect from those businesses. Some investors on Wall Street already fear that a Democratic Congress could bring more regulation of AI, and OCBC's Sim said the market moves were "consistent with concerns about greater scrutiny on AI". As the results came in, AI-related shares tumbled across Asia, and shares of SoftBank Group, an investor in OpenAI, slumped 8%.
It's still too early to know how much building will ultimately be affected, and Hinojosa only takes office in January. For South Africans invested in global tech shares, it's worth watching. Views from All Weather Capital are their own, and not financial advice.
