Midterm Results: Tech Stocks Dip as Democrats Take Texas

Shares of SpaceX and Tesla dropped in premarket trading on Wednesday.

The decline followed the confirmation of a Democratic victory in the Texas governor's race. SpaceX shares fell 3.9% while Tesla shares lost 3.6%. Investors reacted to the results of the midterm elections, which delivered heavy losses to Republican candidates backed by Elon Musk.

The market had already expected Democrats to win the House of Representatives and potentially the Senate. The larger shock for technology stocks came from Texas. Democrat Gina Hinojosa was the projected victor over incumbent Republican Gov. Greg Abbott, according to the Associated Press. Hinojosa has publicly supported a moratorium on artificial intelligence data centers.

Scott Ladner, chief investment officer of Horizon Investments, noted the impact of the Texas result earlier Tuesday. "The one thing that could really end up moving stuff though would be if Abbott were to lose Texas," Ladner said. "Because there is a legitimate question about where do you build these data centers?" He added that Texas is fertile ground for such projects, but a Democratic win would make that ground largely barren.

Wells Fargo data shows that 27% of planned data center gigawatts in the United States are located in Texas. The state represents a major portion of the industry's infrastructure. Other key data center states also saw Democratic victories or retentions of power. Georgia accounts for 7% of planned U.S. data center gigawatts. Ohio and Pennsylvania account for 5% each, according to Wells Fargo estimates.

AI stocks faced additional pressure overnight. CoreWeave, a neocloud provider, sank 4.2%. Nebius Group lost 1.5% and Oracle slipped 2.4%. The Nasdaq-100 futures were flat, while the State Street Technology Select Sector SPDR ETF rose 0.7%. The Nasdaq-100 index had entered correction territory at the end of October due to slowing growth in data center spending.

Ohsung Kwon, chief equity strategist at Wells Fargo, warned this week that the market reaction would hinge on the Texas race. He described a Democratic win as a potential left-tail event for the AI trade. Michael Hartnett of Bank of America previously warned that a Democratic Senate and Texas governor could lead to a stock slump of more than 10% by year-end. The Washington policy team at Optimal Advisory wrote this week that the midterms signal a political upside to blocking or delaying data centers.