Credit investors are sorting winners and losers from a Democratic sweep in the US midterm elections, focusing on how slowing data center approvals could hurt the companies that develop these facilities. Junk bonds tied to data center developers and projects, including Core Weave Inc., Galaxy Digital Inc. and Stingray Compute, traded weaker after Texas Democratic Governor Gina Hinojosa called for an immediate moratorium on development for AI projects. Democrats also celebrated gubernatorial wins in races from Georgia to Ohio, and half of proposed AI data center additions across the US are now seen as vulnerable to stricter local scrutiny and pushback.
Travis King, head of US investment grade corporates at Voya Investment Management, said there is concern that this blue wave will create pushback on data center buildout plans currently expected across the market. Many projects already face broad opposition. In an NBC exit poll, 76% of voters said they oppose the construction of a new data center in their community. Steph Choe, high-yield strategist at Citigroup, said the headwinds are arriving sooner than many expected.
While smaller players could be hurt by slowed projects, the biggest tech firms, known as hyperscalers, could benefit. Many are investing so heavily that their free cash flow is turning negative, so any slowdown in spending could mean less borrowing. Bradford Smith, portfolio manager at Janus Henderson, said the political shift allows for less near-term debt and more time for contracts to mature. Credit risk gauges for US hyperscalers improved on Wednesday. The cost of default protection on Meta Platforms Inc. debt for five years dropped 8.7 basis points to about 110 basis points, according to ICE Data Services.
The stage of construction matters for data center bonds already issued. Bonds issued in 2026, which are more likely tied to projects still in development, declined 3.2% as of October, compared with a 1.5% decline for bonds issued in 2025, according to a Citigroup research note. Choe noted that projects with secured power and permits are less exposed to political change, while those still in development can be significantly affected by regime changes in permitting and environmental reviews.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing