Data center investors are overlooking the political risks

Zoom in: The business is booming. Public and private equities are both up and to the right — not only for actual project operators, but also for related energy and vendor plays.

• The politics have turned sharply negative, often on a bipartisan basis.

State of play: New York has put a temporary moratorium on large new data center projects. Pennsylvania and Texas have implemented new regulatory roadblocks that could decrease development.

• New data center restrictions, including some moratoriums and bans, have been introduced in dozens of other states.

Behind the scenes: Data center investors lament the opposition, often framing it as a correctable community education issue. They also believe that much of the political pushback will dissipate after the midterm elections.

• Even if hostilities harden, they add, there are plenty of states where new projects can be built or existing ones expanded.
• "There is a time horizon problem," explains a Wall Street executive active in the sector. "Capital is underwriting decades of demand while politics runs to the next election. Those two things at times don't reconcile easily. I wouldn't overweight or underweight any one state."

Yes, but: Local fights could get nationalized.

• For example, imagine that Pennsylvania Gov. Josh Shapiro runs for president. Won't he have to argue that what's good for Pennsylvanians is also good for other Americans?
• Permitting and siting are usually a municipal or state-level issues, but the federal government does have all sorts of levers that could slow the industry's roll.
• Wall Street and Silicon Valley are not the electorate. "We can't let China win the AI race" isn't a salient statement for most normies, particularly when their electricity bills keep rising.

The bottom line: There is more than one way for an AI bubble to burst.