Democrats Poised to Reshape Trump's AI and Data Centre Policies Amidst Voter Concerns

The anticipated backlash against Big Tech and data centres, a factor many believe contributed to the Democrats' midterm election gains, has cast a spotlight on the future of the AI sector. Since the commencement of President Donald Trump's second term, the White House has championed policies diverging from those of former President Joe Biden. The Trump administration asserted that Mr. Biden's approach "hinders AI innovation" and pledged to "support AI development rooted in free speech and human flourishing.” Mr. Trump frequently lauded his relationships with technology executives, encouraging rapid AI development and investment while advocating for minimal regulation. The White House also highlighted new agreements that accelerated data centre construction. Consequently, during the initial two years of his second term, Mr. Trump often claimed his initiatives spurred trillions of dollars in investments and commitments from global Big Tech firms and major investment entities.

However, public opinion polls indicate voter frustration with these technologies, citing concerns about environmental impact, associated costs, and their distraction from pressing issues like inflation, high energy prices, and the conflict in Iran. Michael Strobaek, global chief investment officer at Switzerland's Lombard Odier, noted in a memo, “On AI, the Democrats may push to scale back tax incentives, shift more grid costs onto developers and introduce early safety regulations. The midterms will not alter the investment outlook, which we see as supportive for risk assets. Investors will refocus on monetary policy, economic growth and earnings. We keep a pro-risk stance in portfolios.”

Despite Mr. Trump remaining President, his final two years in office and his policy agenda face potential obstacles. He recently reminded the public via an X post that he retains veto power over congressional legislation. Mr. Strobaek anticipates that any federal moratorium on data centres "would likely face an immediate veto." With Democrats now holding more sway in the Senate, they are better positioned to block appointments from the Trump administration, particularly those focused on advancing the White House's AI and data centre agenda. Charu Chanana, chief investment strategist at Denmark's Saxo Bank, wrote in a note, “The more likely outcome is two years of political confrontation, greater congressional oversight and legislative gridlock, rather than an immediate reversal of existing policies. Congress could increase oversight and restrict new incentives, but sweeping regulatory legislation would still face presidential veto risk.”

Analysts had warned prior to the elections that AI-linked shares could be the most vulnerable to risk should the Democrats prevail. Billionaire Elon Musk, formerly associated with Mr. Trump's administration, humorously remarked on Wednesday, after observing declines in Tesla Motors and SpaceX shares, that "data centres in space look pretty appealing now." Manjeet Markanda, head of trade support at Lunaro Markets Ltd ADGM, stated, “Investors now see tougher scrutiny of Big Tech and data centres as more likely. They had already been under pressure in recent weeks, although lower yields could offer some support to valuations. Historically, US equities have tended to be higher a year after midterms, although the first weeks are often choppy. Past performance is not a reliable indicator of future results and volatility appears more likely than a clear trend.”

David Meier, an economist at Swiss bank Julius Baer, noted that increased regulatory scrutiny over AI could impact capital expenditures and related inflows, which have been a significant support for the US dollar this year. He added, “Going forward, monetary policy and the AI investment cycle remain dominant drivers of the US dollar in the near term and should continue to provide support. Over the longer horizon, however, we continue to expect US dollar weakness, reflecting the persistent US current account deficit and continuously strained fiscal position.”

While technology executives and proponents of unregulated AI have faced criticism in the US, they have largely avoided significant regulatory measures. However, this landscape is likely to change with the Democrats' ascendant role in Congress. Nvidia's Jensen Huang, who has shown support for Mr. Trump in recent years, has not yet issued a statement or reacted to the shift in power. His previous efforts to gain favour within the US Congress may prove more challenging with Democrats. On Tuesday, as election results indicated a Democratic victory, OpenAI chief executive Sam Altman posted an enigmatic comment regarding his company's AI philosophy: “People should always be in control of the future. People should not cede control of the future to superintelligence, and that requirement should ultimately constrain AI progress.” Mr. Musk, a prominent Republican donor and supporter of Mr. Trump, jested about accusations of election interference, posting, “Guess my election-interfering space lasers didn’t work this time.” Mr. Musk is responsible for one of the largest data centres in the US, located in Shelby County, Tennessee, which has generated local controversy and became a political issue that nearly led to Democrat Justin Pearson winning a congressional seat in a staunchly conservative district. AMD chief executive Lisa Su, whose company is also a key player in the AI boom, stated on Wednesday that the election results do not alter her company's outlook on AI. When questioned by CNBC about potentially curtailing sales projections related to data centre growth, she responded negatively, saying, “Whether you’re talking about the US, or you’re talking about across the world, there is an intense demand for more compute and we need to work together to make that happen.”

Most experts predict that given the Democratic Party's historical inclination towards greater private sector oversight, the AI sector should anticipate increased regulation and scrutiny. Mark MacCarthy, a senior fellow at the Institute for Technology Law and Policy at Georgetown University, commented, “The new Congress under Democratic control is more likely to take steps to protect ratepayers against paying the costs of AI data centres.” Mr. MacCarthy, who specializes in anti-trust policy, mentioned that a Senate bill proposing mandatory ratepayer protection for new data centres has largely stalled. “Now that the House and Senate have flipped ... the ratepayer protections in this bill could be introduced as a free-standing bill and could provide a starting point for congressional action in the upcoming Congress,” he stated, highlighting the numerous Democrats who campaigned on opposition to data centres. Come January, when the new Congress is sworn in, Democrats will assume control of several committees overseeing cybersecurity, technology, innovation, space, and commerce – all critical areas impacting AI.

Timothy Kneeland, a political scientist and public policy historian at Nazareth University, believes it would be imprudent for Democrats to refrain from applying regulatory pressure to the AI sector and Big Tech. “The days of wine and roses for AI and data centres without regulation is over,” he asserted. Mr. Kneeland suggested that public sentiment has shifted so significantly against technology companies that Republicans might even support Democrats in passing legislation, notwithstanding the threat of a presidential veto. “Republicans could join with Democrats in overriding a presidential veto and the courts will thwart efforts to impose executive orders that violate the law.” Mr. Kneeland linked concerns over AI to a stagnant US economy and a slowing job market. He posited that if applying pressure to technology companies appears to demonstrate Democrats fighting for ordinary citizens, they will likely continue this approach. “Data centres and generative AI might lead to higher energy costs and replace workers, from the very highly skilled to those in more entry-level positions. The Republican President and Congress refused to address these issues and instead wasted time on building monuments to the President or renaming geographic landmarks by executive order.”