The gubernatorial and U.S. Senate races in Texas have become a focal point for the artificial intelligence sector, drawing close scrutiny from political and financial analysts ahead of the midterm elections. Incumbent Republican Governor Greg Abbott is seeking a fourth term against Democratic challenger Gina Hinojosa and Libertarian Pat Dixon, while the Senate contest between Democrat James Talarico and Republican Ken Paxton remains tightly contested.
Data center infrastructure sits at the center of the electoral debate. Wells Fargo estimates that Texas accounts for 27% of U.S. data center gigawatt capacity. A University of Houston survey conducted October 10–14 among 2,000 likely voters (margin of error ±2.19%) found that over 80% of Texans are concerned about the industry’s impact on water supplies and electricity prices. In September, Governor Abbott paused data center permitting, declaring, “Texans must come first.”
The outcome of these races could exacerbate pressure on an AI trade already struggling amid mounting concerns over financing, valuations, and profitability. The Nasdaq-100 recently entered correction territory, falling 10% from its prior peak. “The most worrisome outcome would be a Talarico victory in the Senate race combined with Hinojosa defeating Abbott,” said John Sonsalla, president of Washington Analysis. “That is where the magnitude of the negative implication for the AI trade matters.”
Julian Emanuel, strategist at Evercore ISI, echoed that sentiment, noting that Abbott is expected to lift the data center moratorium while Hinojosa would likely maintain it. While the long-term trajectory of AI may be too substantial to be derailed by a single election, near-term volatility is likely. The sector has already seen significant swings, with the PHLX Semiconductor Index (SOX) down roughly 19% over the past month and the Global X AI and Technology ETF (AIQ) declining about 10%.
Beyond the moratorium, other data center policies hang in the balance. According to The Texas Tribune, Talarico has proposed eliminating certain tax subsidies while tightening standards for labor, environmental protection, and electrical grid usage. However, a Democratic sweep at the state level could paradoxically benefit AI firms federally. “Efforts to protect industry and undercut Chinese competitors are likely to accelerate, because that will be a huge priority for a Democratic Congress or Senate,” said Rob Rains of Washington Analysis.
Analysts also view former President Trump as an ally to the AI trade, expecting he would veto any legislation perceived as threatening technological investment. “Given Trump’s tech policy (‘Stock Market Up!’), we expect he would kill—via veto—any ‘aggressive’ AI model safety law that creates material risk to the AI trade,” wrote Paul Gallant of TD Cowen in a client note. “It will be interesting to see whether Democrats pursue an AI safety law Trump could accept or push messaging bills aimed at winning full control of Washington in 2028.”
