This one governor's race could derail the AI trade that's powered the stock market

By Victor Reklaitis

Here's the Nov. 3 contest that 'presents the biggest election-specific risk,' analysts say

Texas Democratic gubernatorial candidate Gina Hinojosa speaks during a campaign event on Thursday in Austin. She invited her opponent, Republican Gov. Greg Abbott, to debate, but the incumbent did not show up.

President Trump's embrace of artificial intelligence and data centers means that even if Democrats win both the U.S. House of Representatives and the Senate in next month's midterm elections, he's likely to veto any Democratic bills that crack down on the AI industry and the facilities that it needs.

So analysts at Evercore ISI are flagging a gubernatorial race as the most crucial contest for anyone watching for possible policy headwinds for AI and data centers.

The Texas governor's race "presents the biggest election-specific risk," said Evercore's Matt Aks, Sarah Bianchi and Karlin Gatton in a note to clients on Thursday, referring to the clash between Republican incumbent Greg Abbot and Democratic nominee Gina Hinojosa, who currently serves in the state's legislature. "Data-center moratoriums are effectively on the ballot in several state races, but Texas is the most critical given the scale of its project pipeline and the temporary moratorium already put in place under Gov. Abbott."

The Pew Research Center chart below shows how Texas ranks No. 2 among all U.S. states for both the number of operating data centers within its borders and the number of planned facilities. Only Virginia has more, and its next gubernatorial election isn't until 2029.

"Gubernatorial races in other states, notably Georgia and Ohio, will also have important implications for data-center development, and state legislatures are likely to remain active regardless of election outcomes," the Evercore analysts wrote. "But we see Texas as particularly consequential given the amount of investment at stake and the broader importance of demonstrating that a major market can move through political headwinds to arrive at a framework that allows much of that investment to continue."

Most polls suggest Abbott will win the governor's race in Texas, a red state that last elected a Democratic governor in 1990. But Hinojosa has been ahead in a few recent surveys. Abbott had 48.6% support as of Thursday, ahead of Hinojosa's 46.4%, according to a RealClearPolitics moving average of polls.

Hinojosa's chance of winning was around 25% on Thursday after hitting a new high of 27% earlier this month, according to data from prediction market Kalshi. Another prediction market, Polymarket, was giving a similar likelihood, at 23%. (Polymarket has a data partnership with MarketWatch publisher Dow Jones.)

Texas Gov. Greg Abbott speaks at last month's Republican midterm convention in Dallas.

"If Abbott wins as still is expected, we think the path forward from the ongoing audit process will become clearer and that credible projects with local support will ultimately be able to move forward, albeit with additional rules and potentially tax changes that emerge during Texas's next legislative session," the Evercore team said. "However, a surprise victory by Democrat Hinojosa would likely prolong the moratorium indefinitely."

The map below from Cleanview, a company that tracks data-center development, shows the location of up-and-running centers in Texas and ones that are planned.

The AI industry has been a major driver of the U.S. economy and the stock market this year, although the AI trade has been unraveling this month. One exchange-traded fund holding AI-linked stocks, the Global X Artificial Intelligence & Technology ETF AIQ, was up 25% for the year, while the broad S&P 500 equity index SPX had gained 13%.

Now read: The data-center backlash is so fierce that Republican candidates are willing to cross Trump

And see: A big AI super PAC tried to follow crypto's playbook to influence the midterms. Critics say it's not working out.

-Victor Reklaitis

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10-15-26 1500ET