The US midterm elections dealt a significant blow to AI data centers. Tech firms may be reeling as a result.

Across the country, voters largely rebuked AI data centers, casting their votes for both candidates and ballot measures seeking to strongly regulate the construction of these facilities. Since then, tech stocks have tumbled, specifically in the data center and semiconductor sectors, including companies like IREN, AMD, Nvidia, CoreWeave and Core Scientific.

As the public perception of data centers worsens and momentum builds around regulation, the entities that are building these facilities may be getting nervous about their eye-popping, multi-billion dollar infrastructure investments.

• According to Bloomberg, Microsoft may be backing away from its deals with neocloud firms like Nebius, IREN and Nscale, worth tens of billions of dollars between them, amid high costs and regulatory uncertainty. Reuters also reported that the company declined an option to more than double the size of its existing agreement with Nscale.
• Meta president Dina Powell McCormick, meanwhile, warned last week that the Democratic wins in the midterm elections could make it difficult for a lot of companies to build data centers, saying at a WSJ Tech conference on Wednesday that the industry's power players have "not done as good a job as we needed to explain the benefits of these investments."
• On Thursday, OpenAI published a blog post pledging to handle its data center deals responsibly, including avoiding non-disclosure agreements, giving residents the right to weigh in on projects and paying for its own electricity. Additionally, it laid out a policy blueprint for lawmakers, recommending things like mandated public reporting on environmental impacts and transparency on tax incentives.

Additionally, at an event hosted by Nvidia's Jensen Huang at the San Francisco Opera House on Tuesday, Silicon Valley executives expressed concern over the overwhelming disapproval of data centers, according to the Wall Street Journal.

The likely result is that tech companies will slow down their relentless pursuit to build more data centers as regulation adds red tape and raises the cost of getting these projects approved, Valence Howden, advisory fellow at Infotech, told The Deep View. The biggest impact will be at a state level, given how many gubernatorial candidates campaigned on data center construction moratoriums, such as now-Gov. Gina Hinojosa in Texas. Additionally, these projects could face even more opposition on the municipal level.

"Companies may move projects to friendlier states, but that shift would still take time and slow their plans," Howden said.

However, Howden noted, while the infrastructure buildout may face delays, it likely won't be stopped. Rather, it will just force these companies to make more concessions and eat more of the costs of standing up their data centers.

"This looks more like a slowdown with higher costs than a wholesale retreat from infrastructure investment," said Howden. "The pressure would also extend to smaller providers that depend on commitments from big tech companies, which is relevant to the concerns around Microsoft’s neocloud deals."

Our Deeper View

Whether or not the midterm election results represent a temporary slowdown of this buildout or a meaningful reevaluation of compute needs depends entirely on how effective the forthcoming regulation is at actually forcing these companies to press pause. It's indisputable that these AI giants desperately need the data centers that they are building to power their pursuit of increasingly capable models and widespread adoption, and with so much cash and influence at their disposal, the question remains if these firms can buy their way out of the red tape, whether that be through lobbying or more strategic data center deals. Either way, the costs of this new wave of regulation are going to drive data center prices skyhigh, and could put even more pressure on these companies to extract revenue from their frontier models.