The results of the United States midterm elections may put 141 gigawatts (GW) of planned data center capacity at risk of policy constraints, thereby slowing investment in artificial intelligence (AI) infrastructure and assisting U.S. Treasury bonds.
Consequences of Democratic Victories
Democratic victories in Texas, Georgia, and Ohio have increased the likelihood of closer scrutiny of data center projects. These three states alone account for nearly 33 percent of the operational and planned data center capacity in the country. The new governors of these states have emphasized halting or limiting new projects during their campaigns, citing concerns about electricity and water consumption, utility costs, and impacts on local communities.
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Impact on the Bond Market
Given the total capacity of 156 GW of data centers in these three states, approximately 141 GW is still in the planning stage, with only 15 GW operational. Texas alone holds 22 percent of the national capacity, while Georgia and Ohio account for 5 and 6 percent, respectively.
ICICI Bank has warned that the election results do not guarantee the implementation of proposed restrictions, as policy changes will require legal and regulatory support. However, this situation could lead to potential slowdowns in further investments in data centers rather than a complete reversal in the AI investment cycle.
The election results could also be positive for U.S. Treasury markets, as closer scrutiny of data center projects may reduce AI investment costs and decrease the borrowing levels of large technology companies. Lower investment costs could also lead to moderated economic growth and inflationary pressures, reducing the need for further interest rate hikes by the Federal Reserve.
Following the election results, the yield on two-year U.S. Treasury bonds fell by 9 basis points to 4.54 percent, before returning to 4.59 percent. The 10-year yield also decreased by 7 basis points to 4.89 percent, then stabilized at 4.91 percent.
ICICI Bank described these results as "a major positive for U.S. Treasury" and noted the likelihood of passing laws to reduce the deficit and decrease government borrowing. The report also added that Democratic victories could put more pressure on the government to end the West Asia conflict, thereby providing further support for Treasury markets.
Additionally, the dollar index weakened after the election results, which ICICI Bank attributed to expectations regarding stricter AI regulations and their impact on economic growth.
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