The Blue Wave Is Straining The Ai Boom

The AI race is about to crash into Democrats’ pledge to rein in data centers.

Democrats seized control of governors’ offices in Texas, Ohio and Georgia, by promising to place moratoriums on the sprawling facilities at the heart of the tech boom. Other Democrats were elected based on similar pledges in Michigan, New Mexico and Oregon.

Those victories threaten to upend the race to develop artificial intelligence, which has been driving the U.S. economy and sending electricity demand soaring. After Tuesday, 41% of the country’s planned data centers are in states with existing or proposed moratoriums, according to Cleanview, a company that tracks the industry.

Analysts said a wave of new moratoriums would be unlikely to halt data center development, but it could make it more expensive.

“More moratorium on datacenter expansion could have inflationary effects on the whole build-out cycle, meaning it would require more money for funding 1 [gigawatts] of computing capacity as construction costs will increase either due to additional red tape or overconcentration of resources,” Ludovic Subran, chief investment officer of Allianz, wrote in an email to POLITICO.

He estimated that roughly $200 billion in data center projects had been delayed during the first half of the year, or about 1.3% of GDP.

States are particularly important to data center construction because they oversee local electric grids and siting processes.

“State and local decisions will matter more to developers and investors than federal ones for the next few years,” Logan Goldie-Scot, vice president of strategy at the investment bank Generate Capital, wrote in a blog post in the lead-up to Tuesday’s results. “State energy policies influence the generation mix and direct investment in grid infrastructure.”

In a note to clients, Capstone said it expects project delays to increase under new Democratic governors.

“Data center developers, and the utilities and independent power producers that intend to serve them, will face the greatest regulatory hurdles in Q1 2027, especially as state legislators begin proposing dozens of reform bills and permitting pauses enter effect,” the consulting firm wrote on Tuesday.

The impact could be national. AI-related spending has been powering the U.S. economy. In the weeks ahead of the elections, hyperscalers reported spending tens of billions of dollars in the previous quarter on everything from chips and data centers to the electrical equipment needed to power them.

Oxford Economics estimates the U.S. economy is growing at an annualized rate of 2.2% when accounting for AI spending, but only 1.4% without it.

All that spending is a test for Democrats, who swept into power Tuesday on pledges to limit data center development. They must balance voters’ disdain for the facilities’ impacts on electricity bills with the economic benefits of building the massive computing centers.

Analysts said they expect a coming debate over moratoriums to follow the contours established in Virginia and New Jersey, where Democratic governors were elected last year.

“We've been really out in front with our clients that this is not positioning ahead of an election, and it's going to go away on November 4,” said John Miller, an analyst with TD Cowen. “I really anticipate that the new Democratic governors in Georgia and Ohio and Texas are going to come in and follow in many ways a playbook that we've seen in Virginia and in New Jersey, where this is a day one priority.”

Not all Democrats have sought to block data centers. Pennsylvania Gov. Josh Shapiro is pushing developers to bear the cost of grid upgrades and sign community benefit agreements as part of the state permitting process.

Other Democrats may follow. Texas Gov.-elect Gina Hinojosa has said she will impose a moratorium until the Legislature defines new guidelines. Democrats also won control of the Texas state House on Tuesday.

But it’s unclear if Hinojosa will be able to negotiate a deal next year with Texas lawmakers, who are scheduled to convene a short session that ends in May, Miller said.

“I just think there's more uncertainty there than the market is expecting at this point,” he said.

That raises the prospects that hyperscalers will shift their focus to states with fewer restrictions, Miller and other analysts said.