Democrats sweep both chambers, Texas governor changes! AI trading faces a "left-tail event", data center suspension order shocks global chip stocks

According to Zhitong Finance APP, the Democratic Party has achieved a landslide victory in the U.S. midterm elections, securing control of both chambers of Congress. According to reports, Democrats have scored wins even in Republican strongholds nationwide, flipping at least seven Senate seats and capturing House seats in districts Republicans had easily won in 2024. Multiple news organizations forecast that Democrats will seize the House, while Decision Desk HQ projects the Democratic Party has captured the Senate.

Most notably, after Democrat Gina Hinojosa defeated incumbent Republican governor Greg Abbott to become Texas's first Democratic governor since 1990—and also the state's first Latino governor—the market immediately re-evaluated the regulatory and construction risks faced by the AI industry chain. AI-related stocks were broadly under pressure overnight, and today the wave of panic continued into Asian markets, with chip stocks in Japan and South Korea leading global declines at one point.

Data shows that Nasdaq 100 index futures, dominated by technology stocks, dropped 0.8% at one point—more than twice the decline seen in Dow Jones Industrial Average futures. The Technology Select Sector SPDR ETF (XLK.US) fell 2% on the Robinhood trading platform. Stocks with more direct exposure saw even steeper drops: high-risk, emerging cloud service provider CoreWeave (CRWV.US), which relies on borrowing to build data centers, slid 7% on Robinhood; peer Nebius Group (NBIS.US) dropped 4%; Elon Musk's Texas-based AI data asset SpaceX (SPCX.US) was down 6%; and Oracle (ORCL.US) fell 4% on Robinhood.

Election risks have also spilled over into the global supply chain. Japan's Nikkei 225 index plunged about 4% intraday, falling below the 61,000-point mark for the first time in about three months; South Korea's KOSPI index fell as much as 4%, with Samsung Electronics and SK Hynix both dropping more than 5%. AdvanTest, SoftBank Group, Tokyo Electron, Kioxia Holdings and other AI and semiconductor-related stocks led losses—these Asian manufacturers are core hardware suppliers for U.S. AI infrastructure, and potential obstacles to data center expansion in Texas and nationwide have cast a shadow over demand prospects.

Meanwhile, a typical “flight to safety” is also evident across asset classes: the U.S. dollar broadly weakened, with the Bloomberg Dollar Spot Index falling 0.4% at one point, marking its biggest one-day drop in a month; U.S. Treasuries rallied, with the 10-year yield dropping about 7 basis points to 4.89%. Clean energy stocks emerged among the few beneficiaries—as investors bet the Democratic sweep could slow or even reverse the Trump-era energy policies, U.S. solar and grid-related stocks rose against the trend.

Democrats Seize Congress By Landslide

The Democratic victory marks the first real check on Trump’s power in Washington since his return to the White House last year, riding a wave of voter discontent stemming from rising living costs. The incoming Congress is certain to investigate Trump personally, his administration, and business interests, while blocking his legislative agenda.

Projections show Democratic candidates flipping Senate seats in Maine, Kansas, Texas, South Carolina, North Carolina, Iowa, and Ohio. The Democrats needed a net gain of four seats to win Senate control. The Michigan race has yet to be decided, with Democrats currently defending one seat in that state.

In the House races, Democrats gained seats in Indiana, Iowa, Virginia, Texas, Nebraska, New Jersey, and Pennsylvania, among other states. Estimates suggest the Democrats will ultimately hold 255 House seats to the Republicans’ 180. The chairman of the House Republican Campaign Committee, Congressman Richard Hudson, is projected to lose his seat in North Carolina—underscoring the scale of the Republican defeat.

Following announcement of the results, Trump told Fox News he believed the Republican defeat was “in part” due to inflation driven by the war in Iran. However, he defended his decision to go to war and said he did not intend to change his cabinet.

Texas Gubernatorial Election Increases Data Center Risk

In the U.S. midterm elections, the Texas gubernatorial result has emerged as a new risk point for artificial intelligence (AI) trades. As Texas is one of the largest planned data center development regions in the U.S., Hinojosa has pledged to halt new data center construction, prompting the market to reassess regulatory and construction risks facing the AI industry chain, with AI-related stocks coming under pressure overnight.

Reports say Abbott conceded defeat on Tuesday night, calling Hinojosa and later telling supporters that “mathematically, we cannot win this election.” U.S. media also declared Hinojosa victorious at 11:17 p.m. Eastern Time.

It is understood that Hinojosa has made opposition to data center construction a core campaign platform, running ads accusing Abbott of “working for” Elon Musk and featuring footage of the two together. She has explicitly proposed a moratorium on new data center construction, stricter regulation of water and electricity usage, and an end to tax incentives.

Texas is seen as a bellwether for government restrictions on AI data center policies. The state accounts for more than 25% of planned data center capacity in the U.S. by 2030; Wells Fargo estimates that 27% of planned data center gigawatts are in Texas.

In a pre-election report, Raymond James analyst Ed Mills said the Texas gubernatorial race was particularly important for the next phase of AI trades. The Democratic Party’s strong performance in Texas “could indicate a broader election wave, while amplifying concerns about moratoriums and stricter AI regulation in the nation’s largest planned data center development region.”

Wolfe Research analyst Tobin Marcus noted before the election that Texas was the only state large enough, with sufficiently distinct candidates, to create a real impact.

Bank of America said this would be one of the most impactful elections for the entire utilities sector. Its renowned investment strategist Michael Hartnett even warned earlier this year that if Democrats won the Senate and also the Texas governorship, it could trigger a market drop of over 10% before the end of the year.

Abbott had been seeking a fourth term as governor, and stated last year that he wanted Texas to become a “center for AI development.” Recently, he also issued his own moratorium and expressed support for stricter requirements on electricity and water use.

But Hinojosa quickly accused Abbott of “lying,” saying his new proposal was simply “an election year pause.” The election result also reflects a sharp turn in national sentiment against data centers over recent months.

A September poll from UMass Amherst showed nearly two-thirds of Americans opposed constructing AI data centers locally, with only 11% of voters welcoming them; 76% of Democrats and 52% of Republicans opposed data centers in their own communities. In at least 13 states, including Arkansas and Wisconsin, 50 or more local ballot initiatives related to data centers entered the voting process.

The market had already expected Democrats to win the House and possibly control the Senate, but the shift in the Texas governorship was seen as the biggest blow to tech stocks. As Hinojosa’s victory became apparent, relevant stocks were sold off overnight.

Horizon Investments Chief Investment Officer Scott Ladner said, “The thing that could really move the market is Abbott losing Texas,” because “where these data centers are built is a fair question.” He added that Texas is fertile ground for data centers but, “If Abbott loses, I think that ground effectively becomes barren, and that presents a challenge.”

The Democratic victory in Texas adds pressure to the already-stressed AI trade, which has led the bull market. The Nasdaq 100 entered a correction zone at the end of October, as markets grew increasingly concerned that spending growth by hyperscale cloud providers and private AI giants like OpenAI and Anthropic on data centers would slow.

Wells Fargo Chief Equity Strategist Ohsung Kwon warned in a report that a Democratic win in the Texas gubernatorial race could become a “left tail event”—an extremely negative scenario—for AI trades.

Beyond Texas, Democrats are also expected to win or hold other key data center states—Georgia, Pennsylvania, and Ohio—at the gubernatorial level.

Wells Fargo estimates that Georgia accounts for 7% of total planned U.S. data center gigawatts, with Ohio and Pennsylvania at 5% each. The Optimal Advisory Washington policy team wrote this week that data centers in 2024 and 2025 were once popular tools for economic development, but by the time the midterm races heated up, they were virtually “pariahs.” The midterm elections may signal to local and state officials that blocking, delaying and/or raising the cost of data centers offers political benefits.