AI Election: Wall Street Braces for Midterms Amidst Growing Data Center Opposition

The upcoming 2026 midterm elections are shaping up to be a pivotal moment for the future of Artificial Intelligence (AI) development in the United States. As public opposition to data center construction mounts and sentiment around AI grows, Wall Street finds itself at a critical juncture, with significant capital investment on the line.

Key Points

• The composition of the next Congress could significantly influence the policy landscape for AI infrastructure development.
• An estimated $5 trillion in capital spending through 2030 is at stake as public resistance to data centers intensifies.
• Wall Street is closely monitoring the elections, with the prospect of a presidential veto offering some reassurance against radical legislative changes.

The AI Buildout and Political Crosscurrents

With Wall Street heavily invested in the AI boom, projecting over $5 trillion in capital expenditures by 2030, the burgeoning opposition to data centers and general negative sentiment surrounding AI are creating a political headwind. This divergence between financial interests and public opinion could lead to significant market and political volatility around the November midterms and beyond.

"What I consistently hear from investors is that the opposition to data centers is really about the political backlash and that after the midterms things get a lot better. But I think that after the midterms, things get worse," Ed Mills, a political analyst at Raymond James, told CNBC. "That is a huge blind spot for the market."

While some analysts anticipate muted market reactions, JPMorgan's Ariana Salvatore noted a potential short-term dip if Democrats significantly outperform expectations, as they are generally perceived as more critical of the AI buildout than Republicans.

Legislative Prospects and Potential Regulations

The next Congress is expected to address AI, with potential legislation ranging from consumer utility bill protections to a federal moratorium on data center construction, similar to New York's. Proposals also include an AI tax to potentially fund public ownership and mitigate impacts on the tax base, a concept gaining international attention due to AI's potential to shift income from wages to corporate profits.

"So much of the AI future is about these multinational companies trying to attribute their earnings to their [intellectual property] rather than to the productivity of their workers, and that's going to mean huge tax base erosion," Jeremy Bearer-Friend, a George Washington University tax professor, told CNBC.

Other potential measures include holding AI developers liable for harms caused by their software and establishing a comprehensive governance framework. Senator Maria Cantwell (D-Wash.) has also advocated for an "AI-era workforce initiative modeled on the GI Bill."

Gridlock Scenario and Veto Power

Given that Democrats often express more opposition to data center construction than Republicans, a Democratic gain in Congress could lead to legislative gridlock. However, the presence of a Republican White House, which wields veto power, may reassure the tech industry. President Donald Trump's administration has historically been allied with Big Tech, receiving substantial political donations and featuring tech leaders prominently.

Despite the potential for a presidential veto, rising anti-AI public sentiment could still foster bipartisan agreement on AI-related legislation. Mills suggests that a veto-proof majority for measures like a data center moratorium is a possibility, though not necessarily the base case.

Key Races to Watch

States with significant data center activity, including Texas, Ohio, Pennsylvania, and Michigan, are crucial battlegrounds. Races in Michigan, Texas, and Pennsylvania are already highlighting data center issues, with candidates proposing moratoriums, tax reform, and stricter regulations. The Senate race in Ohio is particularly noteworthy, as a memo from the National Republican Senatorial Committee identified data centers as a "sleeper issue" that could impact election outcomes.

Governors' races in Florida, Georgia, and Nevada are also being closely watched by analysts, who believe they could be even more consequential than legislative races in shaping policy dynamics. Deutsche Bank notes that while neither party has a clear advantage on AI issues, shifts in a few seats could reset policy trajectories.

Salvatore of JPMorgan anticipates that the midterms could prompt the market to reassess the durability of the current policy path, potentially leading to an "initial risk-off reaction function" either before or after the elections, especially given the President's veto power and the distant 2028 presidential election.