The midterm elections ushered in Democratic majorities in both the House and Senate for the next two years, along with state-level gains that could shake up oversight of artificial intelligence (AI).
The AI sector has faced political scrutiny in a variety of areas, including the amount of electricity consumed by data centers and its impact on consumers, as well as cybersecurity and labor force impacts.
President Donald Trump has made the development of artificial intelligence – which he has rebranded in official White House policies as “superintelligence” – a priority in his administration and has the authority to veto legislation passed by the Democratic Congress, while he will also retain control of regulatory agencies in the executive branch.
With the AI buildout advancing at a rapid pace, Democratic policymakers at the federal and state level could make moves that affect how companies approach those investments as they deal with oversight and political pressure.
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State Street chief macro policy strategist Elliot Hentov and investment strategist Christine Norton wrote that “Democratic gains could create additional headwinds for… and increase scrutiny of AI providers and data center development, particularly the impact of power demand on local communities.”
“These concerns are heightened by some of the state gubernatorial results,” Hentov and Norton added. “Yet at a federal level, congressional control alone would not be enough to curtail AI-related data center construction in the face of a presidential veto.”
“AI also remains a strategic priority for both parties, suggesting that greater policy scrutiny should not automatically be equated with an end to the AI capital spending cycle. AI investment will likely continue to be robust in 2027, albeit tempered by strains on the supply chain and tighter credit,” they added.
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Dallas Dolen, technology, media and telecom lead at PwC told FOX Business that with Democratic control of Congress “we’re likely to see greater scrutiny around AI safety, bias, labor, copyright and transparency, but more oversight doesn’t necessarily mean more certainty.”
“Companies will still be navigating an evolving patchwork of state requirements, and they can’t put major AI investments on hold while the rules take shape,” Dolen said. “They need a strong governance baseline that allows them to keep investing, building and scaling AI responsibly.”
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Strategists at UBS noted that potential pauses on data center construction in states like Texas, where Democrats flipped the governorship and state House, could affect the outlook for AI infrastructure and cloud computing companies.
“Data center pauses will slow the pace of buildout into 2028 with ~30% of expected 2028 additions now at risk of being impacted, and Texas alone is 18 GW of that. Congress is less likely to go beyond the states in our view with data centers now more likely to pay for grid upgrades – which has the potential to raise costs,” the UBS strategists wrote.
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“The slowdown is a negative for Semis and AI infrastructure, but a lot is already priced into Semis with valuations nearing multi-year lows. Additionally, Semis positioning has been cut sharply,” they added.
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