Market cheers slower data center buildout as voters reject expansion

Tuesday's US midterms delivered a loud message: data centers are unpopular. After a brief construction boom, they create few long-term jobs and raise local electricity costs. Among 41 local votes on restricting data centers, 40 are set to pass, with approval margins around 75/25%.

Microsoft and Amazon, both deeply invested in data centers with big expansion plans, might seem like natural losers. Instead, their shares have risen roughly 7%, as investors welcome a more cautious pace of data center construction. The market has frowned upon the heavy spending on overpriced chips and supply chains.

In essence, the market sees regulators doing what the companies should have done themselves. The firms have tried to convince Wall Street of data center economics, but the capital demands are too steep and the risk-reward balance is unpersuasive.

Management may now show some reflexivity. Seeing the stock rally after data center restrictions, they could dial back ambitions to better match free cash flow. That could give a strong lift to shares that have endured a tough year.

Amazon stands out because its core business—delivering goods—is less exposed to AI disruption than a software company like Microsoft.

On the flip side, companies that build data centers are hurting. Neocloud providers and vendors have all fallen sharply, along with firms contracted to supply power to the centers.

Looking ahead, watch the agenda congressional Democrats set on AI and data centers. They have many options, including tackling widespread corruption. Some AI oversight is likely, but it is unclear if they will go after data centers nationally.

Another region to watch is Texas and Ohio, which hold over a quarter of proposed data center capacity. Both newly elected Democratic governors campaigned against data centers, and their next moves will be crucial.

Most importantly, voters have made clear they will not accept higher electricity rates just to fund OpenAI's more intensive data center operations.