Midterm: the severe cold snap hits Texas’s data centres

For years, Texas has marketed itself as the promised land of artificial intelligence. And, more specifically, of data centres. A winning combination of vast tracts of low-cost land, abundant energy and tax breaks has made the state the promised land for large-scale data centres. The mid-term elections, however, threaten to alter future prospects. Or perhaps they are simply changing them.

This is also because voters seem to have a different image of Texas in mind. Gina Hinojosa has become the state’s first Democratic governor since 1990, and James Talarico the first Democratic senator since 1988 (the Democrats also secured the posts of lieutenant governor, attorney general, state comptroller and the Railroad Commission, the body that regulates the energy sector). In short, these were by no means trivial elections, in a contest closely watched by the major tech companies. And the market has interpreted the result as a direct threat to the expansion of data centres.

It must be said that the reaction was rather selective. Whilst the stock markets reacted with a certain degree of euphoria to the election result, shares linked to AI infrastructure lost ground. Starting with semiconductor manufacturers, almost all of which were in negative territory, with Samsung, SK, STM and other chip companies in the red (Intel, a company that the Trump administration has been dragging down in recent months, lost as much as 4.5 per cent, for example). But it was primarily data centre developers with projects in Texas that saw their shares plummet. Cipher Digital and Hut 8 fell by more than 16 per cent. This is partly because, when focusing solely on data centre capacity set to come online in the US by 2028, Texas accounts for nearly 30 per cent, according to SemiAnalysis – the highest share of any US state. And ERCOT, the Texas electricity regulator, was reviewing around 474 GW of connection requests (which is more than five times the record peak load), with around 90 per cent of this demand coming from data centres.

Now, however, the Democrats’ new Texas could come to an abrupt halt. Not least because the new governor, Hinojosa, built her campaign precisely on this issue. She accused developers of driving up energy bills and wasting water, and promised to block approvals until the state legislature passes rules that give communities a say, protect households’ energy bills and scrap tax incentives for the sector. The energy sales tax exemption, she said in an interview, costs Texas more than a billion dollars a year.

It must be said, however, that the market had already priced in part of the halt to data centre development, not least because the outgoing governor, Greg Abbott, had put a freeze on approvals for new grid connections at the start of August and, on 21 September, had banned the issuing of permits until the end of the grid audit. So much so that some developers had already begun to look elsewhere, with Utah and Georgia among the alternatives. The difference now is very real. This is because the Democrats (and, to some extent, the market too) were convinced that Abbott’s moratorium would end immediately after the election. Now, however, the situation has changed overnight.