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Donald Trump may be the biggest loser from the US midterms when power and face are the benchmarks. In financial terms, however, his losses are dwarfed by Elon Muskโs.
Thatโs not to say that the US president hasnโt lost financially. Shares in his Trump Media plummeted nearly 25 per cent and his crypto interests were also savaged on Wednesday as the extent of the Democratsโ election success became apparent.
According to Forbesโ real-time Billionaires List, Trump โ number 632 on the list, with an estimated personal fortune of $US6.4 billion ($9.1 billion) โ has lost about $US167 million this week.
That pales in comparison with Muskโs election fallout. According to the same list, the worldโs richest manโs net worth is down by more than $US42 billion ($60 billion). Shares in his SpaceX fell more than 6 per cent on Wednesday, while Teslaโs slumped 3.3 per cent.
Moreover, Musk ploughed $US474 million ($675 million) into support for Republican candidates in the elections, including about $US224 million in Texas, where much of it was spent on aggressively negative and highly personal attacks on the Democrat nominee for the Senate, James Talarico.
Not only did Talarico beat the heavily Musk-backed Ken Paxton. Texas โ where SpaceX and Tesla are headquartered after Musk moved them from California โ now has its first Democrat governor, Gina Hinojosa, in 32 years.
Musk has wasted the best part of half a billion dollars, and this investment was probably counter-productive, as his unprecedented financial backing for the Republican candidates featured heavily in Talaricoโs and Hinojosaโs campaigns.
Musk quipped on his X social media platform that his โelection-interfering space lasers didnโt work,โ but it was another post that shows the real damage that the failure of his efforts to influence the outcome of the elections will do.
In the prospectus for SpaceXโs $US1.77 trillion initial public offering, Musk outlined his vision of data centres in space, powered by the sun โ along with his plan to colonise Mars.
On Wednesday, he posted that building data centres in space was โlooking pretty appealing right nowโ.
That comment has a sharp edge to it. Texas, now firmly in the hands of the Democrats, has attracted somewhere between 25 per cent and 30 per cent of all the data centres being built or on the drawing boards in the US.
Both Talarico and Hinojosa campaigned heavily on promises to limit and more intensely regulate them, with Hinojosa pledging an immediate statewide moratorium on all new data centre approvals and permits. She pledged to keep the moratorium in place until the Texas legislatures passed new laws to protect communities and give them a say on where any new centre is located.
Talarico promised to advocate for legislation to make data centre companies pay for their own energy and infrastructure; to mandate closed-loop and recycled water systems, to repeal sales tax exemptions and to end taxpayer subsidies.
Itโs not just the Texas Democrats or Texan voters who are pushing back against data centre development.
There was a backlash that aided Democrats โ who made it an election issue โ across the country, with 41 ballot initiatives that would halt or restrict the building and operation of data centres voted on at the elections. Forty of them passed.
Thus, itโs not just Musk, but the artificial intelligence industry generally that will be seeing the blue tsunami that swept across the American political landscape, and gave the Democrats control of both chambers of Congress, as a threat.
Until this week, the big threat to the frenzied AI development was access to capital. With even the hyperscalers with their vast legacy cash flows now tracking ever-deeper into cashflow-negative territory, the sector is becoming increasingly reliant on ever-expanding access to equity and debt markets that are already showing some signs of satiation.
If there was a secondary threat to the sectorโs ability to build the infrastructure to house and operate the vast and ever-expanding computing power required to train and run AI models and their agents, it was considered to be the supply of energy to power them. New power generating capacity hasnโt been able to keep up with the pace of AI development and the proliferation of the data centres.
Now the โotherโ big threat โ local communitiesโ hostility to the locating of centres near their backyards, with their impact on their neighbourhoods and utility bills โ is probably the bigger and more immediate cloud over the sectorโs future.
The Democrats in Congress will also regulate AI and its infrastructure if they can, although Trump may veto any attempt to restrict an industry he has left almost regulation-free. AIโs promoters have โdonatedโ heavily to his cherished building projects, along with their backing of Republican candidates.
Opposition at the state and local levels โ and there was a lot of down-ballot success for Democrats at the elections โ is, however, likely to be more immediate and potent than whatever might happen in Washington.
Perversely, for some in the AI ecosystem, that will be regarded as good news. Shares in Amazon (up 6.1 per cent), Microsoft (6.7 per cent), Meta (1.4 per cent) and Alphabet (3.2 per cent) all rose in the wake of the electoral landslide as it became evident that the rate of AI developmentโ and the gargantuan levels of funding required to support that growth โ would be reduced by the outcome.
Shares in data-centre-focused neoclouds like CoreWeave and Nebius, however, tanked.
CoreWeave shares were down 9.9 per cent and Nebiusโ almost 7 per cent. The neoclouds donโt have non-AI-related cashflows to fall back on and their valuations are reliant on the data centres and lease commitments for computing power that they have in their pipelines.
Share prices on Wall Street generally rose โ the Standard & Poorโs 500 was up 1.6 per cent and the Nasdaq index rose 1.4 per cent โ and bond yields fell. Itโs impossible to unbundle whether some of that was due to relief that the call on financial markets for equity and debt to fill in the widening gap between hyperscalersโ cash flows and the $US1 trillion of spending in the pipeline for next year might be reduced by data centre capacity constraints.
But there would inevitably be some relief that the tensions could ease between the demand for capital and the capacity and willingness of investors to supply it to such a concentration of risks.
There might also be some relieved figures within the Federal Reserve Board.
AI has been contributing to inflationary pressures on the US economy as the demand for semiconductors and other IT equipment, energy and the raw materials required to build data centres and install the computing capacity has soared.
A slower pace of development will help, even at the margin, ease that pressure and make the pathway for future interest rate rises shallower and shorter. It could also, however, slow Americaโs economic growth rate, given that AI spending is estimated to be generating up to 40 per cent of US GDP growth.
The impact of the midterms on AI is probably the most immediate and visible for any industry sector, but the crypto industry will also be bemoaning the opportunity lost in September when Congress failed to pass crypto-friendly legislation that would have brought digital currencies into the financial mainstream.
The crypto sector โ which has financially backed the Trump presidency, and from which Trump and his family have made billions in his second term โ knows that the Democrats are more likely to present bills in Congress that would intrusively regulate the industry to protect consumers and the existing financial architecture than emulate Trumpโs laissez-faire approach.
If the implications of the Democratsโ triumph for AI and crypto were combined, youโd have to say it hasnโt been a good week for the tech bros โ especially Elon Musk.
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