After the midterm elections, things look difficult for Elon Musk and data centers

The Democrats’ historic victory in this week’s midterm elections could also have a dramatic effect on the tech industry.

In dozens of local ballot measures, voters have rejected data centers. And even when they weren’t voting directly on the issue, they were electing politicians — like Texas’ newly elected governor, Gina Hinojosa — who campaigned on a promise to restrict data centers.

In the latest episode of TechCrunch’s Equity podcast, Kirsten Korosec, Sean O’Kane and I discussed what the midterm elections mean for the tech industry. Sean kicked off the debate by noting that Elon Musk “seems to have virtually no business donating half a billion dollars” to Republicans, even though his companies are now headquartered “in a state that, remarkably, has become as blue as it could possibly become.”

And Kirsten said that while data centers probably weren’t the main cause of the “blue wave,” they have become “an increasingly popular issue, in part because of the way hyperscalers and enterprises have gone about it” getting their projects approved. And now, “we’re already seeing companies like OpenAI all of a sudden saying, ‘Actually, we can change our policies.’

Keep reading for a preview of our conversation, edited for length and clarity.

Sean O’Kane: First, let’s talk about the fact that one of the largest data center builders was also the largest donor to the Republican Party. Elon Musk appears to have gotten virtually nothing out of a half-billion-dollar donation — maybe even more, by the time we see the final tally — and in fact, he’s now sitting there with all his companies in a state that, remarkably, has gone as blue as it could get for the first time in a very long time, if ever.

That, I think, is the most important thing that hangs over a lot of this discussion. But there were also a number of ballot measures across the country that would have paved the way for faster construction of data centers. Almost all of them were shot down or voted against. (In fact, many ballot measures would have imposed restrictions or moratoriums on data centers, and almost all of those measures passed.)

With (Democrats) in power, there’s a consensus, at least in the tech world, that that’s going to mean we’re going to have a lot of hurdles ahead for data centers, especially in places like Texas, where (you have) people like Governor-elect (Gina) Hinojosa, who has spoken pretty openly about this being a campaign promise and something she wants to focus on once she takes office, now that she defeated Greg Abbott.

That’s what I think the tech world is maybe a little bit Also focused on. I’m curious what you think about it.

Anthony Ha: I don’t necessarily think they’re focusing too much on it, but I understand why it would seem a little disproportionate: the data center ballot measures, there were certainly a number of them, but it wasn’t something that was on the ballot everywhere.

And in different races, the dynamic might have been a little different, but there was this undercurrent and sense that this seems to be a problem that spans the entire country, that is bipartisan in many ways, but that Democrats seem to have been more effective in harnessing that energy. And of course, there are all sorts of reasons why Democrats did so well on Tuesday, but it seems like anti-AI and especially anti-data center sentiment is a big part of it. This seems to be a pretty powerful political force.

The next two years, (and) potentially beyond, will be more difficult for technology companies in general, and for hyperscalers, data center companies in particular. I also imagine they have to be a little concerned: Is this going to continue to be a problem, not just for the people who were elected this year, but potentially in 2028 and beyond?

Kirsten Korosec: Absolutely. I don’t think the data center issue is what brought everyone to the polls and led to the quote-unquote “blue wave.” However, I will say that data centers are an increasingly popular issue, in part because of the way hyperscalers and corporations have gone about getting these data centers (approved) – highly secretive, often requiring NDAs from elected or appointed officials, not sharing information about the scale of a project in very environmentally sensitive areas, including the Southwest, where there is a major water shortage problem.

So I think a lot of people – Republicans, independents and Democrats – all saw this as a mistake. They were motivated by it, but I don’t think it’s a unique problem.

Now here’s the interesting thing. There’s been a lot of hand-waving about how (AI companies) couldn’t work in other circumstances. And we’re already seeing companies like OpenAI all of a sudden saying, “Actually, we can change our policies.” » They just released what they call an IT campus policy plan. And guess what? They will no longer need an NDA. They will share their plans and are expected to operate in less secrecy.

I think it shows that when you bring regulatory certainty to the market, or at least signals that you’re moving in that direction, then businesses respond. If you don’t do that, they won’t necessarily do what we hope they will do.

Anthony: One thing I want to point out is that they call this (their) “campus computing policy.” And part of what this does, beyond presenting these policy changes, is also an attempt to rebrand data centers, because they’ve become such a toxic phrase. So these aren’t data centers anymore, they’re computing campuses, and I’m curious if any of you think that will take.

Sean: I mean, it’s ridiculous. Come on. It won’t change anything. This will require more effort from them. For a company that likes to say it’s no longer focused on side quests, OpenAI still really likes to go in different directions. And it’s just the last kind of thing where you ask yourself: why are you spending time on this? It doesn’t really seem like this is going to shake things up.

Kirsten: I have a great idea for OpenAI. Because in an effort to make menacing things cute, they should 100% create an IT campus avatar, (a) cutesy thing, and then just present it instead of a data center that sucks up energy and water.

Anthony: And if it’s just nice IT campuses, they should just build their own offices there or work next to it, see how that works for them.

Another question I have is to what extent elections are perhaps the second part of a duo. (We’ve just seen) a big shift in the way Wall Street is reacting to a lot of these hyperscalers and AI companies and this sense that (investors) aren’t excited about the idea that they should be spending all this money building new data centers, spending all this money on compute. So there is a financial incentive not to build all these data centers.

I’m very curious how this will happen. (From a regulatory perspective) it will probably be more difficult to build data centers. Wall Street probably won’t reward you for building data centers. But at the same time, to achieve the scale they want to achieve, they’ll probably have to build data centers somewhere.