By David Lawder, Steve Holland and Noel Randewich
WASHINGTON, Nov 5 (Reuters) - Democrats' sweeping midterm election victory unleashed a rout of tech stocks on Thursday, with investors worried the party will use its gains in state capitols and the US Congress to impose new regulations that will slow the AI infrastructure buildout that has fueled this year's market gains.
Two days after Democrats flipped seven seats in the Senate, gained at least 39 in the House of Representatives and picked up five
governorships, stocks sold off across the board, with the tech-heavy Nasdaq Composite notching a 5.56% drop, its most dramatic fall in 19 months.
The election reflected broad dissatisfaction across America with President Donald Trump, particularly his launching of a war in Iran that has sent fuel costs soaring, powering Democratic wins in Republican-led states including Texas, South Carolina, Kansas and Iowa.
"Investors appear to be recognizing that some newly elected members of Congress and governors are looking to slow the pace of AI infrastructure development," said Melissa Brown, global head of investment decision research at SimCorp. "While it seems unlikely that they will be able to stop it altogether, any slowdown would raise concerns because the AI growth story has largely depended on the rapid buildout of supporting infrastructure."
Texas governor-elect Gina Hinojosa, who defeated three-term Republican Greg Abbott, has pledged to halt new data center construction in one of the fastest-growing markets for such AI server farms.
Democrats in Congress have also called for new legislation to shield consumers from higher electricity costs tied to data centers and to require independent testing of AI systems.
The party's wins promised to give new power to opponents of new data centers, which are at the heart of the AI boom but are loud, thirsty for water, hungry for electricity and increasingly unpopular with their neighbors.
TRUMP'S OFFICE INFRASTRUCTURE
The Republican president, meanwhile, devoted his one public appearance of the day to signing a document aimed at making the White House's Oval Office -- which he has decorated with gold-colored trim and new statues and paintings since returning to power last year -- a national monument.
"We've had a lot of victories in this office," Trump told reporters, two days after voters handed his fellow Republicans a stunning midterm election defeat. He made no mention of the stock market selloff or the prospect of tougher AI regulation.
"There's been some mistakes too, but we've had tremendous victory in this office," Trump continued, sitting at a desk now decorated with a red hat bearing the word "VETO" in all capital letters. "So we're making it a national monument, and it will not be allowed to be touched by anybody, destroyed, ripped down by stupid people, in order to build something in a slightly different shape."
Trump had devoted his last pre-election public appearance on Monday to talking about his renovations of the Lincoln Memorial Reflecting Pool, and on Wednesday called in reporters to show off the ballroom he is building at the White House, replacing the historic East Wing that he had demolished.
WAITING ON MISSISSIPPI, ALASKA
Close Senate races in Alaska and Mississippi - where Democrats hold narrow leads - remained uncalled as of Thursday, leaving open the possibility that the Democrats' majority could increase by two more seats to 56-44.
Once seated in January, Democrats are expected to use their power to investigate Trump's administration, family and allies and demand concessions on major legislation. The Democratic Senate can block Trump's nominees, including any US Supreme Court justices should a vacancy arise.
In the meantime, Republicans hold the reins and will have at least one must-pass piece of legislation ahead – a measure to fund the federal government past December 11 – that they could use to enact conservative priorities during the so-called lame-duck period.
(Reporting by David Lawder and Steve Holland in Washington and Noel Randewich in San Francisco, additional reporting by Daphne Psaledakis; editing by Scott Malone and Deepa Babington)
