AI Election Backlash Is Shaping Wall Street’s Stock Market Views

AI Election Backlash Is Shaping Wall Street’s Stock Market Views

Matthew Griffin

Tue, August 18, 2026 at 2:58 PM GMT+3 5 min read

(Bloomberg) -- The backlash against artificial intelligence and the data centers needed to run it is becoming such a touchy election issue that Wall Street is being forced to factor it into its stock market recommendations.

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Last week, strategists at Bank of America Corp. told clients that a strong showing by Republicans in November's midterms would cause US equities to "rip." The group led by Michael Hartnett put a particular focus on the reelection of Texas Governor Greg Abbott, cautioning that if Democrats gain control of the Senate and Texas governor's mansion it would trigger a slump of more than 10% in the stock market next year, the technical definition for a correction. That follows earlier warnings from Evercore ISI and BCA Research that a populist response to AI could spell trouble for equities.

"There is a tremendous amount of risk coming for the big AI sort of super leaders," said Henrietta Treyz, cofounder of Veda Partners, an investment adviser and consulting firm in Bethesda, Maryland.

Polls show that opposition to building new data centers is a bipartisan issue in the US, with voters worried about their impact on the environment and electricity prices. And elected officials are starting to take notice. Governors are reassessing tax credits for data centers, while a long list of cities and counties, as well as the state of New York, have placed restrictions on their construction.

State-level AI policies will become a model for the federal government, Treyz said. While comprehensive legislative action is unlikely in the next Congress, the end of the midterm campaigns will free lawmakers to address the issue, in turn shaping investors' views of what's to come, she said.

That explains why BofA is so focused on the race in Texas between Abbott and Democratic State Representative Gina Hinojosa. The vote is a referendum on technology companies' need to build out the infrastructure powering AI versus voters' concerns about affordability, inflation and the impact of new data centers on their communities, the strategists said.

Texas is among the US states with the most operating and planned data centers. It's also a Republican stronghold. So any action against data center construction would be a clear signal that these concerns aren't confined to the Democratic party.

Abbott effectively paused electric grid approvals for data centers this month, ordering regulators to audit every similar project that's seeking access to the grid. But Hartnett still views his potential reelection as a bullish sign for AI. Other analysts, however, are concerned about what the audit requirement will mean for regulated utilities such as American Electric Power Company Inc. and energy generation firms like NRG Energy Inc.

The audits are "the latest escalation of anti-data-center rhetoric in Texas and across the US with a clear focus on bringing new power (BYOG) for new data centers," Jefferies analyst Julien Dumoulin-Smith wrote in a note to clients this month, calling Abbott's move a "chilling signal" for power stocks. "BYOG" refers to "bring your own generation."

New York's moratorium on new large data centers is part of the reason Baird recently downgraded the shares of Caterpillar Inc., which has become tied to the AI trade as companies building the facilities snap up its power generation equipment. On the other hand, power equipment companies such as GE Vernova Inc. and Bloom Energy Corp. will actually benefit as pressure grows for data centers to generate their own power instead of plugging into the grid, according to Morgan Stanley.

"Policy action is building as community pushback to data centers intensifies," a Morgan Stanley research team led by Michelle Weaver wrote in a note this week. "We expect this conversation to spread as it gains relevance with voters ahead of the midterms."

Of course, none of this is to say that Wall Street is turning pessimistic on the AI trade as the S&P 500 remains near its all-time high and the beneficiaries of all the spending on the technology continue to dominate the market. The Philadelphia Stock Exchange Semiconductor Index, better known as the SOX, has surged 78% in 2026, even after a significant August slump, putting it on track for its best year since 1999 as capital expenditures keep flowing to chipmakers.

The market will likely be volatile for AI infrastructure stocks in the near term, according to Aniket Shah, global head of Washington, sustainability and transition strategy at Jefferies. But if the federal government steps in and smooths out the patchwork of state-level regulations currently overseeing the technology, it will ultimately be a positive for investors, he said.

"This is going to be a technology that will be regulated, like every other normal technology," Shah said. "That is good for investing in AI in the long term, because you want regulation if you want a technology to have a future."

--With assistance from Norah Rami and Jordan Fitzgerald.

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