Democrats' Midterm Victory Negative For AI Sentiment, Morgan Stanley Says

01:01 PM EST, 11/04/2026 (MT Newswires) -- The Democratic Party's decisive victory in the US midterm elections could weigh on broad artificial intelligence sentiment amid expectations for increased restrictions on data center buildouts, Morgan Stanley said in a Wednesday client note. The Democrats won 54 seats in the 100-member Senate and 228 seats in the 435-member House of Representatives, ending Republican majorities in both chambers, preliminary election results by the Associated Press showed Wednesday. The AP had yet to call 2 Senate and 68 House races as of midday. "Key market implications include incrementally negative AI sentiment on greater expectations for data center restrictions," Morgan Stanley wrote. State-level legislation from newly elected Democratic candidates could divide the US into regions that are open to building new data centers and those that aren't, Morgan Stanley said. Factors impacting projects such as interconnection and tax incentives are mainly governed at the state level, Morgan Stanley said. Democrat James Talarico beat Republican Ken Paxton in the Texas Senate race, making him the first Democrat elected to the upper chamber of Congress from the formerly reliable red state since 1988. In another upset, Republican Texas Gov. Greg Abbott lost to Democratic state Rep. Gina Hinojosa, who will become the first Democrat to hold the Texas governor's office since the 1990s, the AP reported. Texas has become a hotspot for data centers in the US. Hinojosa's victory "increases policy risk with respect to the pace of data center approvals and construction" as her campaign included a proposal to halt approval for new data centers, Morgan Stanley wrote in its Wednesday note. "By far, the most important election result, from the perspective of data center development, was the Texas gubernatorial election," the Wall Street giant said. Stocks with the largest Texas data center and behind-the-meter power exposure are Cipher Digital (CIFR), MARA (MARA), Galaxy Digital (GLXY), Solaris Energy Infrastructure (SEI), Vistra (VST), Constellation Energy (CEG), American Electric Power (AEP), Sempra (SRE), CenterPoint Energy (CNP) and NRG Energy (NRG), Morgan Stanley said. The election of Democratic candidate Amy Acton for the Ohio governor race also creates substantial risk of data center project delays in the state, according to the brokerage. The largest project at risk is the 10 gigawatt project involving Nvidia (NVDA) and OpenAI, as well as Amazon's (AMZN) 1.5 GW facility, Morgan Stanley said. "We see scope for lawmakers to introduce legislation targeting AI buildout such as reversing the (One Big Beautiful Bill Act's) immediate expensing or a tax on compute, but we think such legislation is unlikely to materialize given (President Donald Trump's) opposition," the brokerage said. Price: 203.69, Change: -3.00, Percent Change: -1.45