As Big Tech has poured hundreds of billions of dollars into artificial intelligence development, myriad bottlenecks have given investors reason to worry, from multiyear delays in natural gas turbine deliveries to capital availability and energy access constraints.
However, with midterm elections just two months away, the biggest bottleneck is elsewhere, according to Melius Research — in regulation.
“The binding constraint on growth has shifted,” James West, managing director at Melius Research, wrote to clients on Monday. “It is no longer turbines, capital, or customer intent: rolling into midterms, it is permission.”
West’s argument underscores the growing role of politics in the US’s AI infrastructure build-out. As resistance to data center development has grown in communities across the country, state governments have increasingly clamped down, pursuing legislation that slows construction.
New York became the first state in the nation to enact a moratorium on data center construction in late July, when Gov. Kathy Hochul signed legislation putting a one-year hold on development of any “hyperscale” data center that consumes 50 or more megawatts of power.
Texas Gov. Greg Abbott and Alphabet and Google CEO Sundar Pichai lead a panel at the Google Midlothian Data Center on Nov. 14, 2025, in Midlothian, Texas. (Ron Jenkins/Getty Images) · Ron Jenkins via Getty Images
The Texas gubernatorial election has become a critical race for the data center industry. Throughout 2025, current Republican Gov. Greg Abbott courted developers, pointing to the state’s ream of existing energy infrastructure and open land. In November last year, the governor called Texas the “epicenter of AI development” as Google (GOOG, GOOGL) signed a $40 billion commitment to build three data center campuses in the state.
By August 2026, the Electric Reliability Council of Texas (ERCOT) said it was reviewing 476 gigawatts’ worth of proposed new electricity demand, equal to more than five times the state’s highest recorded electricity load — with roughly 90% of those requests coming from data center developers.
Texas’s ERCOT power grid has forecast explosive growth in power demand as data center developers look toward the state. (Chart: ERCOT) · ERCOT
The wave of development has prompted a growing tide of local backlash amid concerns about energy and water use, to the point that, in August, Abbott shifted his stance on the industry. The governor recently ordered an audit of proposed data center projects planned for ERCOT, prompting the Texas energy grid operator to reduce the system’s 2027 expected energy load growth from 14% to 6% due to the pause in new data center development.
More recently, Abbott said during public remarks that data center developers “dug their own grave.”
In the upcoming gubernatorial election, Abbott will run for reelection on the Republican ticket against Democratic candidate Gina Hinojosa, who has made Abbott’s connections to the data center industry a key point of her critique. The Democrat has imposed an immediate moratorium on data center construction, set to last until the Texas legislature can pass legislation to control development, a key part of her platform.
Texas Democratic gubernatorial candidate Gina Hinojosa speaks during a campaign rally as part of the “New American Dream Tour” in Beeville, Texas, on Aug. 22, 2026. (Ronaldo Schemidt/AFP via Getty Images) · RONALDO SCHEMIDT via Getty Images
That said, moves like Abbott’s audit can be good for the industry, Melius’s West wrote, reducing “phantom demand,” where developers submit proposals for the same project to multiple jurisdictions, shopping around for the fastest and cheapest option while creating an unrealistic picture of legitimate demand.
“We read this as constructive rather than bearish for incumbents,” West wrote. “Audits, registries, and curtailment obligations thin a queue everyone privately knew was inflated — and they advantage owners of energized, dispatchable, contracted assets over speculative developers.”
The shift, West said, is that major developers are increasingly moving toward deals that will enable them to build out large-scale power infrastructure directly, rather than tacking their projects onto an already strained power grid. NRG Energy (NRG) recently advanced a 1.2 gigawatt “bring your own power” project in Texas with a leading hyperscaler. Constellation Energy (CEG) signed long-term contracts for 920 megawatts of nuclear power.
As lawmakers look intently at residential power bills and grid demand, developers will have to build their own solutions, West said.
“The common thread is that the structures are migrating toward customer funded generation and contractual curtailability, which is exactly what the political process is demanding,” West wrote.
In an aerial view, the Meta El Paso Data Center is seen on Aug. 13, 2026, in El Paso, Texas. (Brandon Bell/Getty Images) · Brandon Bell via Getty Images
Jake Conley is a breaking news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him at jake.conley@yahooinc.com.
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