Texas Elects a Governor Who Would Pause Data Centers

WASHINGTON, Nov. 4 — DemocratsDemocrats won control of both houses of Congress in Tuesday’s elections, the Associated Press reported. In Texas, which holds about 27 percent of the country’s data-center gigawatts by Wells Fargo’s estimate, voters turned out Gov. Greg Abbott for Gina Hinojosa, a Democrat who has called for a moratorium on data centers until the Legislature writes rules for them. Mr. Abbott had been seeking a fourth term.Twenty-Seven PercentThe share is Wells Fargo’s estimate, as CNBC reported it on Tuesday. CNBC has also reported that Texas was projected to overtake Virginia as the world’s biggest data-center market by 2030.

The market spent the night pricing it. Nasdaq-100 futures were down 2 percent at 9:58 p.m. Eastern, CNBC reported, and Tokyo’s chip stocks fell as much as 10 percent. By 5 a.m., S&P 500 futures were higher.

Investors had said beforehand that the governor’s race was the one to watch. “The health of the ‘AI Revolution’ will be influenced by the TX Governor’s Race,” Julian Emanuel, a strategist at Evercore ISI, wrote in a note quoted by CNBC at 5:31 p.m. on Tuesday; the bank expected Mr. Abbott to lift the state’s current restrictions on data centers and Ms. Hinojosa to keep them. Scott Ladner, chief investment officer of Horizon Investments, said, as CNBC reported at 9:14 p.m., that “there is a legitimate question about, where do you build these data centers?”

For investors such as Mr. Emanuel and Mr. Ladner, a crucial change was in Austin: in Texas, permits, grid connections and water for data centers run through state bodies that Mr. Abbott has been directing since June. Rob Rains of Washington Analysis told CNBC that Democratic success at the state and local level might pose obstacles for the physical build-out but could help the industry in Washington, where efforts “to try to protect industry and to try to fence off [or] undercut Chinese competitors” were “likely to pick up considerably.” Ian Lyngen of BMO Capital Markets had put the other side in a note to clients on Tuesday, quoted by CNBC: “The better the Democrats perform, the more nervous the market is likely to become regarding AI regulations.”

The Governor-Elect

Ms. Hinojosa, a five-term state representative from Austin, made data centers a centerpiece of her campaign. In July she called on Mr. Abbott to sign an emergency executive order putting a moratorium on them until the Legislature met, and set out what she wanted it to pass: a say for Texans over “if and how data centers come to their communities,” an end to companies’ nondisclosure agreements, proof that households would not pay more for power or water, and an end to subsidies. “I’m calling for a moratorium until a legislative session that puts Texans first so that we don’t have any more communities in Texas who are powerless against these global corporations,” she said then. “Guidelines from the governor aren’t laws, they won’t protect Texans, and that’s exactly how Abbott’s donors like it,” she said in an August statement.

I’m calling for a moratorium until a legislative session that puts Texans first so that we don’t have any more communities in Texas who are powerless against these global corporations.

Mr. Abbott, who once called Texas the “epicenter of AI development,” had already reversed course. On Aug. 3 he ordered the state’s grid operator, ERCOT, to audit data centers seeking to connect and to deny connection to any that failed, and on Sept. 21 he told the state’s environmental agency to stop issuing them permits. “Data centers must pay their own way, protect our grid and water, and complete the ERCOT and TWDB audits. Until they do, TCEQ will issue no permits sought by data center projects,” he said in a statement that day.Abbott’s PauseAfter reports that some data-center permits were still being approved, the Texas Commission on Environmental Quality shut down its filing system entirely, The Texas Tribune reported on Oct. 30. The pause runs until the grid operator and the state water board finish their audits. President Trump called the pause “a mistake” in August. “When a community wants it, it means a lot of money is going to come into that community,” he said, as FOX 26 Houston reported. Some operators had backed Mr. Abbott’s audits: “Governor Abbott is putting Texans first and we are committed to doing the same,” Andy Power, Digital Realty’s chief executive, said in an Aug. 7 statement.

Mr. Abbott conceded a little after 11 p.m. Eastern, and the AP called the race shortly afterward, CNBC reported. “I love our state. It has been an honor to serve it,” he told supporters, according to The Texas Tribune. “We shocked the world tonight,” Ms. Hinojosa said in her victory speech, The Texas Tribune reported.

What she can do alone is limited: a Texas governor can act by executive order, call special sessions, appoint officials and veto bills, but the laws she has promised need the Legislature.What a Governor Can DoExecutive orders and disaster declarations lack the permanence of state law, because a later governor can rescind them, The Texas Tribune noted on Oct. 30. Removing an appointee requires the “advice and consent” of the Texas Senate. Republicans were expected to keep their majority in the Texas Senate, The Texas Tribune reported. Control of the Texas House was undecided early Wednesday; Democrats needed to flip 14 seats to win it, the Tribune reported.

Texas was not alone. The AP reported that Keisha Lance Bottoms won the governorship of Georgia and Amy Acton that of Ohio; Ms. Bottoms “campaigned on a statewide data center moratorium,” and Ms. Acton’s campaign “included going hard against data centers,” Heatmap News reported. In Texas and Ohio, Politico reported, Ms. Hinojosa and Sherrod Brown, who won back a Senate seat, “leaned on voters’ uneasiness about the facilities.”

The Night

Tuesday’s session had gone the other way. The PHLX Semiconductor Index rose 2.63 percent, and companies that power data centers or rent out their capacity rose further: GE Vernova 6.49 percent, CoreWeave 7.16 percent, Nebius 7.25 percent and Vistra 3.70 percent.

S&P 500 and Nasdaq-100 futures had opened higher on Tuesday evening, CNBC reported; by 9:58 p.m., S&P 500 futures were down 1.1 percent. In Tokyo, the Nikkei 225 was down 4.45 percent at 10:59 p.m. Eastern, at its lowest since May, as investors weighed the prospect of tighter restrictions on data-center development under a Democratic Congress, CNBC reported. By midnight, Disco was down 10.19 percent, Tokyo Electron 7.04 percent and SoftBank Group more than 8 percent.

Tokyo’s chip stocks won back much of the fall by Wednesday’s close, when the Nikkei ended down 1.42 percent and Tokyo Electron down 3.42 percent from Monday; the market was shut on Tuesday.

By 5 a.m. in New York, S&P 500 futures were at 7,650, up 0.70 percent from their prior settlement. In trading before the open, as of 5:10 a.m., some stocks that had rallied on Tuesday were lower: CoreWeave was down 1.97 percent, Vistra 1.64 percent and Oracle 0.86 percent.ORCLNYSE119.79▲3.69+3.2%Oracle · Monday’s session First Solar was up 8.66 percent and Bloom Energy 6.06 percent. AMD, which reported after Tuesday’s close, was up 6.94 percent; its results are reported elsewhere in this edition.

Not every race turned on data centers. Of voters in the CNBC Voter Poll, 56 percent called them a crucial or major factor in their decision. But in The AP Voter Poll, roughly half cited government corruption and the cost of living as crucial to their vote for Congress, more than cited AI data centers. “Data centers were not deciding races themselves in all cases,” Heatmap News, which followed the data-center races, reported. The industry’s super PACs lost a major late bet in South Carolina’s Senate race, and local ballot questions on data centers went against building, both reported elsewhere in this edition.

The U.S. market opens at 9:30 a.m. In Austin, the first test comes before Ms. Hinojosa takes office: Evercore had expected Mr. Abbott to lift his restrictions, and he now has the rest of his term to decide whether to leave them in place for her.