Morgan Stanley warns data center backlash could hit AI trade in midterms

The core tension is between the enormous investments Big Tech is making in data centers to power AI ambitions and the local opposition that is proving effective at stalling or cancelling projects. Morgan Stanley has flagged this as a key wedge issue for the 2026 election, and sees it as a state and local policy risk rather than a federal one for now. President Donald Trump has framed data centers as a positive economic force for rural communities, but Business Insider reporting has found they can impose extreme costs on struggling economies.

The races on Morgan Stanley's radar show the issue cutting across party lines. In Pennsylvania's 8th District, Republican Rob Bresnahan Jr. introduced a bill to limit developers' ability to sue municipalities over zoning, while in Michigan's 7th District, Democrat William Lawrence supports a federal moratorium and Republican Tom Barrett has filed multiple bills. In the Senate races, candidates in Texas, Michigan, and Ohio have staked out positions ranging from tax break repeals to moratoriums, though in Ohio neither candidate explicitly supports a pause.

The stakes for the AI trade hinge on whether any of these candidates win and can implement their proposals. A wave of successful anti-data center candidates could slow the buildout, while those who support the projects could clear the path for Big Tech's investments. The fact that Morgan Stanley sees this as state and local rather than federal suggests the near-term risk is fragmented across individual districts, but the cumulative effect of multiple local victories could still create significant headwinds for the industry.