Texas Election Loss Triggers Sharp Sell Off in AI Infrastructure Stocks

Shares of SpaceX and Tesla dropped in premarket trading on Wednesday following a decisive Democratic victory in the midterm elections.

SpaceX shares fell by 3.9%, while Tesla declined by 3.6%. The losses followed significant defeats for Republican candidates backed by Elon Musk. Broader market indicators remained mixed, with futures on the tech-heavy Nasdaq-100 trading flat and the State Street Technology Select Sector SPDR ETF rising by 0.7%.

Investors focused on the outcome of the Texas gubernatorial race, which proved most detrimental to the artificial intelligence sector. The Associated Press projected Democrat Gina Hinojosa as the winner against incumbent Republican Governor Greg Abbott. Hinojosa has publicly supported a moratorium on new AI data centers. According to Wells Fargo data, 27% of planned data center gigawatts are located in Texas. The election results suggest a political shift that could complicate construction in the state.

Scott Ladner, chief investment officer at Horizon Investments, noted the potential impact on infrastructure development. "The one thing that could really end up moving stuff though would be if Abbott were to lose Texas," Ladner said earlier Tuesday. He added that Texas is fertile ground for data centers, and losing it would make that ground largely barren, creating a challenge for the industry.

Other major players in the AI data center space also saw their shares decline. CoreWeave, a company that uses borrowed money to build data centers, fell by 4.2%. Nebius Group dropped by 1.5%, and Oracle shares were down by 2.4%. These declines occurred as the Nasdaq-100 index entered correction territory at the end of October, driven by concerns that spending growth from major hyperscalers and AI firms like OpenAI and Anthropic is slowing.

Democrats also secured or retained governorships in other states with substantial data center plans. Georgia, Pennsylvania, and Ohio are projected to have Democratic governors. Wells Fargo estimates that Georgia holds 7% of all planned U.S. data center gigawatts, while Ohio and Pennsylvania account for 5% each. Michael Hartnett of Bank of America had warned earlier in the year that a Democratic takeover of the Senate combined with the Texas governorship could trigger a stock market slump of more than 10% by the end of the year.

Ohsung Kwon, Wells Fargo's chief equity strategist, described a Democratic win in Texas as a potential left-tail event for the AI trade in a report published this week. Meanwhile, the Washington policy team at Optimal Advisory observed that data centers have shifted from being a popular economic development tool to a political liability. They wrote that the midterms send a message to local officials that there is a political upside to blocking or raising the cost of data centers.