Why AI Stock Investors Should Watch U.S. Gubernatorial Elections [Weekend Money]

Electricity costs and environmental burdens make data center regulation an election issue
Investment sentiment could waver after the elections
Short-term uncertainty possible... focus on investment pace and where it goes

Analysts say investors looking for the next catalyst for AI stocks should also pay attention to U.S. gubernatorial elections. That is because where data centers can be built, and under what conditions, has become as important as how well semiconductors are selling and how much Big Tech is investing. Behind the AI boom, residents receiving their electricity bills have made their complaints an election issue.

Data centers are large-scale computing facilities needed to run AI. The problem is that they consume enormous amounts of electricity and water. Residents are concerned about rising electricity bills and worsening living conditions. In a Reuters-Ipsos poll released on October 7, 69% of voters who support the Democratic Party and 43% of voters who support the Republican Party backed restrictions on data center construction. This is difficult to view as an issue belonging to just one party.

It is not enough to focus only on which party will control Congress in the U.S. midterm elections in November. Decisions by local governments have a direct impact on data center permits and electricity rate policies. KB Securities identified the outcomes of gubernatorial elections in 36 states as a factor that could determine the direction of regulation. In nearly 20 states, at least one candidate is campaigning for a “moratorium” that would temporarily halt data center construction and permitting.

“If bills for moratoriums or executive orders are raised one after another around January next year, when new governors and state legislatures take office, markets may begin pricing in negative scenarios before the actual severity of the regulations becomes clear,” said Kwon Heejin, an analyst at KB Securities.

However, she sees limited chances that hard-line campaign pledges will translate directly into a sharp decline in investment. At the federal level, even if the Democrats take control of Congress, U.S. President Donald Trump retains his veto power. State governments also have to take into account the tax revenue and investment in construction and power infrastructure that data centers bring, as well as residents’ opposition, she explained.

There is also competition with other states to attract investment. If a state raises the bar too high, companies may move to a neighboring state. In other words, efforts to appease residents could come at the cost of losing investment. The solution Kwon expects is cost-sharing rather than an outright ban. A compromise could take the form of conditional approvals requiring data center companies to bear the costs of additional power demand, rather than passing the burden on to residents.

This trend is already emerging. In August, Pennsylvania issued an executive order requiring data center developers to secure power and cover related costs. The aim is to ensure that, even when energy-intensive facilities are attracted to the state, the costs of the necessary power generation, transmission, and distribution infrastructure are not shifted onto households and other businesses.

If companies have to provide their own substations, power grids, and generation facilities, their investment costs could actually increase. “While the pace of investment may slow somewhat, the overall scale is unlikely to shrink significantly. This makes it unlikely that the midterm elections will substantially alter the outlook for AI investment and growth next year,” Kwon said. “There is a need to prepare for short-term uncertainty, but there is no need to be pessimistic about the medium-term trajectory.”

This content was produced with the assistance of AI translation services.