Democrats sweep both chambers, Texas governor's race flips! AI trade hit by a "left-tail event," data center moratorium rattles global chip stocks.

Democrats sweep both chambers of Congress with a landslide victory in the US midterm elections. According to reports, Democrats won in Republican strongholds across the country, flipping at least seven Senate seats and winning House seats in districts Republicans easily carried in 2024. Multiple news organizations project Democrats will win the House, while Decision Desk HQ projects Democrats have taken the Senate. Most notably, with Democrat Gina Hinojosa defeating incumbent Republican Governor Greg Abbott to become Texas's first Democratic governor since 1990 and the state's first Latino governor, markets immediately reassessed the risks facing the AI supply chain on the regulatory and construction fronts. AI-related stocks came under broad pressure overnight, and the panic spread further to Asian markets today, with Japanese and Korean chip stocks at one point leading global declines. Data showed that Nasdaq 100 futures, dominated by tech stocks, fell as much as 0.8%, more than double the decline in Dow Jones Industrial Average futures; the Technology Select Sector SPDR Fund (XLK.US) fell 2% on the Robinhood trading platform. More directly exposed names fell even more: high-risk emerging cloud service provider CoreWeave (CRWV.US), which relies on borrowing to build data centers, fell 7% on Robinhood; peer Nebius Group (NBIS.US) fell 4%; Musk's Texas-headquartered AI data-related name SpaceX (SPCX.US) fell 6%; and Oracle Corporation (ORCL.US) fell 4% on Robinhood. Election risk also spilled over into global supply chains. Japan's Nikkei 225 fell about 4% intraday at one point, slipping below the 61,000 mark for the first time in about three months; South Korea's KOSPI fell as much as 4%, with Samsung Electronics and SK Hynix each down more than 5%. Advantest, SoftBank Group, Tokyo Electron, Kioxia Holdings and other AI and semiconductor-related stocks led the declinesthese Asian manufacturers are core hardware suppliers for US AI infrastructure buildout, and potential obstacles to data center expansion in Texas and across the US directly cloud their demand outlook. Meanwhile, a typical "risk-off repricing" also emerged across asset classes: the dollar weakened across the board, with the Bloomberg Dollar Spot Index falling as much as 0.4%, its largest single-day drop in a month; US Treasuries strengthened against the trend, with the 10-year yield falling about 7 basis points to 4.89%. Clean Energy Fuels Corp. shares were among the few beneficiariesinvestors bet a Democratic sweep could slow or reverse Trump-era energy policies, and US-listed CECEP Solar Energy and grid-related names rose against the trend. Democrats take control of Congress with overwhelming advantage The Democrats' landslide marks the first real check on Trump's power in Washington since he returned to the White House last year, with the party riding a wave of voter discontent over the cost of living. The incoming Congress is certain to launch investigations into Trump himself, his administration and his business interests, and to obstruct his legislative agenda. Democratic candidates are projected to flip Senate seats in Maine, Kansas, Texas, South Carolina, North Carolina, Iowa and Ohio. Democrats need a net gain of four seats to win Senate control. Michigan has yet to be called, where Democrats are currently defending a seat. In the House races, Democrats won seats in states including Indiana, Iowa, Virginia, Texas, Nebraska, New Jersey and Pennsylvania. Democrats are estimated to ultimately win 255 House seats to Republicans' 180. Representative Richard Hudson, chairman of the House Republican campaign committee, is projected to lose his seat in North Carolina, underscoring the severity of the Republican losses. After the results emerged, Trump told Fox News he believed Republicans lost "partly" because of price increases triggered by the Iran war. But he defended his decision to go to war and said he did not plan to reshuffle his cabinet. Texas governor's race raises data center risk In the US midterm elections, the Texas governor's race has already become a new risk point for the artificial intelligence (AI) trade. As Texas is one of the largest planned data center development regions in the US, Hinojosa's pledge to pause new data center construction prompted markets to reassess the regulatory and construction risks facing the AI supply chain, and AI-related stocks came under pressure overnight. According to reports, Abbott conceded defeat on Tuesday night and called Hinojosa, later telling supporters that "mathematically we cannot win this election." US media also declared Hinojosa the winner at 11:17 pm ET. Hinojosa made opposition to data center construction one of the central planks of her campaign, accusing Abbott in ads of "working for" Elon Musk, accompanied by images of the two together. She explicitly proposed pausing new data center construction, imposing stricter regulation on water and electricity use, and ending tax incentives. Texas is seen as a bellwether for government restrictions on AI data centers. The state accounts for more than 25% of planned US data center capacity by 2030; Wells Fargo & Company estimates that 27% of planned data center gigawatts are located in Texas. Raymond James analyst Ed Mills said in a pre-election report that the Texas governor's race is particularly important for the next phase of the AI trade, and that a strong Democratic performance in Texas "could presage a broader electoral wave while heightening concerns about moratoriums and stricter AI regulation in the nation's largest planned data center development region." Wolfe Research analyst Tobin Marcus noted in pre-election analysis that Texas is the only state large enough, with sufficiently distinct candidates, to potentially have a real impact. Bank of America Corp said this is one of the elections with the greatest impact on the entire utilities sector. The bank's well-known investment strategist Michael Hartnett even warned earlier this year that Democrats winning the Senate, combined with taking the Texas governorship, could trigger a stock market plunge of more than 10% by year-end. Abbott was seeking a fourth term as governor and said last year he wanted Texas to become "the center of AI development." He recently also announced his own moratorium and expressed support for stricter requirements on electricity and water use. But Hinojosa quickly accused Abbott of "lying," calling his new proposal nothing more than an "election-year pause." The race also reflects a sharp national shift in sentiment against data centers in recent months. A September UMass Amherst poll showed nearly two-thirds of Americans oppose building AI data centers locally, with only 11% of voters welcoming them; 76% of Democrats and 52% of Republicans opposed building them in their communities. At least 50 data center-related local ballot measures in 13 states, from Arkansas to Wisconsin, also went to a vote. Markets had already expected Democrats to win the House and possibly even control the Senate, but the flip of the Texas governorship was seen as the biggest blow to tech stocks; as signs of Hinojosa's victory emerged, related stocks were sold off overnight. Horizon Investments chief investment officer Scott Ladner said "the thing that could really move the market is Abbott losing Texas," because "where these data centers get built is a legitimate question." He said Texas is fertile ground for data centers, and if Abbott lost, "I think that fertile ground basically becomes barren, and that would pose a challenge." The Texas Democratic victory adds pressure to the already strained AI trade that has led the bull market. The Nasdaq 100 entered correction territory at the end of October amid growing concerns about slowing data center spending growth among large hyperscalers and private AI giants OpenAI and Anthropic. Wells Fargo & Company chief equity strategist Ohsung Kwon warned in a report that a Democratic win in the Texas governor's race could become a "left-tail event" for the AI tradean extreme negative scenario. Beyond Texas, Democrats are also expected to win or hold governorships in other key data center statesGeorgia, Pennsylvania and Ohio. Wells Fargo & Company estimates Georgia accounts for 7% of total planned US data center gigawatts, with Ohio and Pennsylvania each at 5%. Optimal Advisory's Washington policy team wrote this week that data centers were a popular economic development tool in 2024 and 2025 but had become nearly "pariahs" by the time midterm campaigning heated up; the midterms could signal to local and state officials that there is political gain in blocking, delaying and/or raising the cost of data centers.