40 of 41 Data Center Referendums Rejected; AI and Chip Stocks Become Biggest Losers in U.S. Midterm Elections

Translated by TechFlow

TechFlow Preview: The "Blue Wave" swept through both chambers of Congress during the US midterm elections, flipping five governorships. High inflation and living costs became the core metrics for voter accountability. Resonating with shifting public opinion and demands for AI safeguards, 40 out of 41 statewide data center ballot initiatives across the US were rejected. Furthermore, states accounting for over 40% of planned computing capacity elected governors who campaigned on halting construction.

The electoral shock quickly transmitted to financial markets. The Nasdaq 100 index wiped out $2.3 trillion in market cap in a single day, the Philadelphia Semiconductor Index plummeted 12%, and expectations for Anthropic's IPO valuation faced pressure. The article further reviews historical US stock market returns amid Middle East tensions and legislative-executive stalemates, as well as the political reshuffling driven by younger generations.

What Does the Midterm Election, Focused on Living Costs, Mean for Markets?

Last week, a "Blue Wave" swept through both chambers of Congress in a historic US midterm election. It was a decisive victory: Democrats won the House with the largest midterms popular vote margin since Watergate, simultaneously flipping five governorships in states previously carried by Trump in 2024.

Voters are furious over rising living costs and have directly targeted the two most obvious "scapegoats": the Iran War instigated by the Trump administration (which has pushed up gasoline prices and overall inflation) and AI data centers, which voters blame for skyrocketing electricity bills.

Meanwhile, American voters are calling for younger political leaders to step forward, with the 120th Congress welcoming a record-breaking 97 Generation Z and Millennial lawmakers.

After the election results were announced on Wednesday, US stocks briefly rebounded as Trump indicated he would accept the outcome and cooperate with the Democrats. The Dow Jones Industrial Average closed up 3% that day, posting its best single-day performance in over a year, while the S&P 500 rose more than 1.5%.

However, these gains were completely reversed on Thursday. The Nasdaq 100 plunged 6.4%, wiping out $2.3 trillion in market cap in a single day and setting a record for the steepest single-day market cap loss in the index's history; semiconductor stocks faced heavy selling pressure, with the Philadelphia Semiconductor Index crashing 12%. For both major indices, these were the largest single-day declines since March 2020.

The market's sharp reversal stems from growing investor concerns: a Democrat-controlled Congress may enact stricter regulatory legislation, and newly elected Democratic governors could delay data center construction within their respective states. Either scenario would slow the current cycle of AI infrastructure development that is supporting the strength of US equities and the macroeconomic outlook.

Voters Reject Data Center Construction as AI Stocks Pay the Price

This midterm election served as a mirror reflecting the American public's true stance on AI, and the results are not optimistic. Over 80% of both Republican and Democratic voters supported candidates advocating for AI safety guardrails. In local referendums nationwide, voters overwhelmingly rejected data center projects.

Of the 41 local ballot measures regarding data centers nationwide, an astounding 40 were rejected. Furthermore, the three key states accounting for over 40% of the US's planned computing capacity (Ohio, Georgia, and Texas) all elected Democratic governors who campaigned on pausing or slowing data center development.

While this likely will not completely halt the overall pace of data center construction, it will almost certainly delay project timelines and drive up building costs.

Figure: Distribution of planned computing capacity across US states supporting pauses on data center construction (Texas 88.4 GW, Ohio 21.9 GW, Georgia 20.2 GW, and 9 other states account for 41% of the national total, totaling 158.6 GW; Source: Paul Kedrosky / Prof G Media)

During Thursday's sell-off, chip stocks and AI infrastructure sectors faced the harshest declines due to the direct impact of such project delays. Chip manufacturers Western Digital and SanDisk fell 17% and 22% respectively, while Micron and AMD each dropped more than 17%.

Meanwhile, emerging cloud compute providers (Neoclouds) remain mired in steep declines, with CoreWeave, Nebius, and IREN seeing their market caps cut nearly in half over the past month.

Election results were not the sole factor driving this downturn. Bloomberg reported on Thursday that Microsoft, one of the first tech giants to lease compute power from emerging cloud providers, is withdrawing from certain data center partnership projects with Nebius, IREN, and Nscale, and is evaluating whether to sign new compute contracts.

This wave of selling also impacted the pipeline of AI-related IPOs. On forecasting platform Kalshi, the probability of "Anthropic listing before December 1" plummeted from nearly 90% earlier this week to 59%. Bloomberg also disclosed that prospective IPO investors currently value Anthropic between $1.1 trillion and $1.3 trillion, significantly below the $2 trillion target discussed by the market in early October.

Large-cap tech stocks also pulled back last week, but Amazon, Microsoft, and Alphabet still posted gains for the week. Although tighter AI regulation poses some headwinds, slower approval processes for new data centers could actually benefit hyperscale cloud giants: already controlling 48% of global data center capacity, hindered new expansion means their existing inventory will become scarcer and more valuable.

Scott Galloway's Take: Data centers are arguably the worst-managed brand in America, now reduced to an empty vessel for public resentment over income inequality. The public has harbored long-standing grievances against tech billionaires, and voting against data center construction is the only way they can cast a ballot to protest this group of wealthy elites.

OpenAI is currently trying to rebuild its brand image by rebranding data centers as "compute campuses," but this approach simply won't work. It's akin to renaming a landfill a "Legacy Materials Park"—a form of self-deception.

Voters Blame Price Increases on the Iran War

According to The Washington Post, Trump urged voters to "pretend he himself was on the ballot" in the midterms no fewer than 63 times leading up to Election Day, with more than 50 of those requests occurring solely between October and early November. Many voters complied, though not with the desired result.

As vote tallies rolled in from various states, Trump quickly changed his narrative.

Screenshot of Trump's November 3, 2026, post on Truth Social claiming he did not appear on the ballot, asserting he would have won by a landslide otherwise

The president's decision to go to war with Iran may have directly cost the Republicans this midterm election. Nearly three-quarters of surveyed US voters stated that the Iran War was a key or important factor in their voting decision, with this group casting 62% of their votes for Democrats and only 35% for Republicans.

Even US Vice President JD Vance publicly attributed the Republican defeat to the Iran War the day after the election.

The market interpreted this political shift as a signal that the Middle East conflict could end sooner rather than later. International crude oil prices retreated 13% last week, and the US Aerospace & Defense ETF also fell 1%.

Nevertheless, Democrats cannot unilaterally halt the war. Senate Majority Leader Chuck Schumer proposed leveraging Congress's power of the purse to force a ceasefire, but Democrats lack the absolute majority in both chambers needed to override a presidential veto.

The more likely outcome remains legislative-executive gridlock, and historical data suggests this is typically not good news for US stocks. According to Royal Bank of Canada (RBC) data, since 1953, among all partisan control combinations featuring a Republican president and a Democratic Congress, the S&P 500 index delivered the lowest average annual return.

Figure: Comparison of S&P 500 average annual returns under different US partisan control combinations since 1953 (Republican president with Democratic Congress ranks last at 5%, while Democratic president with split or Republican Congress both sit at 16%; Source: RBC Wealth Management, Bloomberg)

Young Voters Elect a New Generation of Leaders

Two years ago, American youth helped propel Trump back into the White House, but in this midterm election they shifted overwhelmingly toward the Democrats. Support for the Democratic Party among male voters under 30 rose from 51% in 2024 to 59% in 2026; similarly, support among female voters in the same age bracket climbed from 61% to 70%.

The cost of living has consistently remained the top priority for Gen Z voters. In Harvard University's fall Youth Poll, a staggering 91% of young voters cited living costs as the core consideration in their voting decision, ranking highest among all issues.

"Affordability" became the defining issue throughout the campaign because Trump and the Republicans made high-profile promises to solve this problem but failed to deliver. At a rally in August 2024, Trump declared, "Starting day one, we're going to end inflation and make America affordable again."

Reality, however, proved precisely the opposite: inflation climbed from 3.0% when he took office to 3.7% in September of this year, eroding all real wage growth for American workers. Meanwhile, labor now receives only 52.8% of the nation's total economic output, marking the lowest share recorded since the US government began tracking this metric in 1947.

Trump's usual rhetoric highlighting economic achievements falls largely flat on younger audiences. He frequently points to record-high stock markets as proof of a thriving economy, but younger demographics hold a minuscule portion of the market: Millennials and Gen Z collectively own just 9.3% of US stock and mutual fund assets, whereas Baby Boomers control 54.5%.

Young voters are desperate to see a new generation of leadership. In Harvard's spring Youth Poll, respondents identified 39 years old as the ideal age for members of Congress. By contrast, the average age of lawmakers at the opening of the 119th Congress hovered near 59. Additionally, a summer CNN poll showed that nearly 60% of Americans consider "one-quarter of congressional members being over 70" to be a serious problem.

This frustration was directly reflected in this year's candidate pool: over a third of Congressional candidates this year were under 45, and Millennials have become the largest cohort in Senate races for the first time in history.

Figure: Trend in the number of Senators and Representatives aged 70 and older at the end of each US Congress term (The 119th Congress ended with 37 Senators and 99 Representatives, both at historical highs; Source: The New York Times / Prof G Media)

Ed Elson's Take: The change we have been calling for has finally materialized: young people stepped up to vote, younger candidates ran for office, and many of them successfully won.

Young men originally favored Trump largely because he acted like a "bro." His frequent podcast appearances were genuinely amusing at first, but the half-life of this persona lasted only a few months before they quickly realized they had been played.

Now, I hope to see the Democrats seriously confront intergenerational inequality and implement viable policies to try and reverse the trend. This could mean equalizing labor income tax rates with capital gains tax rates, or implementing income thresholds for Social Security benefits.

These are extremely difficult political issues. But if the Democrats merely pay lip service to caring about young people without taking substantive action, young voters will likewise abandon them without hesitation.

Ed Elson's Prediction: We are about to enter an era of cautiously advancing AI regulation.

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