Tighter controls on Texas data center development could weigh on AI-related stocks without derailing the broader investment cycle, according to Bualuang Securities’ (BLS) summary of Morgan Stanley’s analysis. The bank also sees potential support for US consumption from slower welfare cuts and reduced risk of unexpectedly heavy Treasury borrowing under Democratic control of Congress.
The election outcome described in the summary gives Democrats both congressional chambers, alongside gubernatorial victories for Gina Hinojosa in Texas and Dr. Amy Acton in Ohio. Morgan Stanley highlights Texas as the most consequential result for data center investors.
Texas Exposure Drives Stock Risks
Hinojosa previously proposed suspending approvals for new data centers until clear legislation and regulatory standards are established. The scale of proposed development makes Texas particularly important. Requests for grid connections totalled 474 gigawatts—more than five times ERCOT’s record peak electricity demand—with data centers accounting for approximately 90% of new power requests.
According to the summary, the incoming governor could delay new projects through executive action, appoint members of the state electricity regulator and influence permitting. Broader changes, including removing tax incentives or requiring developers to cover transmission costs, would need state legislative approval.
Morgan Stanley sees the greatest exposure among bitcoin miners expanding into AI and high-performance computing, including Cipher Digital, MARA Holdings and Galaxy Digital, where projects still awaiting approval face risks.
Power producers Vistra Corp., NRG Energy and Constellation Energy Corporation could see near-term pressure, while Talen Energy Corporation and Public Service Enterprise Group Incorporated may outperform because they lack Texas exposure. Equipment suppliers GE Vernova and INIO also face potential weakness from slower data center spending, with INIO considered more vulnerable. Bloom Energy Corporation could benefit from demand for alternatives to gas turbines.
Among utilities, CenterPoint Energy carries the highest Texas-related risk. For established data center operators Equinix and Digital Realty Trust, however, a shortage of facilities with available electricity could strengthen long-term pricing power.
Meanwhile, Ohio also warrants attention. The summary highlights a 10-gigawatt development associated with NVIDIA and a major US AI laboratory, alongside Amazon’s 1.5-gigawatt project under construction in Fayette County.
Rather than signalling an end to AI capital expenditure growth, Morgan Stanley sees restrictions potentially dividing the US market between states encouraging development and those imposing tighter approval and electricity requirements.
Welfare Policy Could Support Consumption
Democratic congressional control could allow lawmakers to delay, soften or reverse SNAP and Medicaid reductions included in OBBBA.
Morgan Stanley estimates that such changes could add up to 0.4 percentage points to personal consumption growth in 2027, while broadening household spending. Its US fiscal deficit forecast nevertheless remains around 6% of GDP.
Republicans would also lose the ability to pass fiscal legislation through reconciliation using only their own party’s votes when the new Congress begins work in January 2027. That would reduce the risk of additional spending driving Treasury borrowing above market expectations.
However, easing welfare cuts could still require modestly higher issuance, particularly across two- to seven-year maturities, potentially weighing on intermediate-dated Treasuries.
Portfolio Positioning Remains Unchanged
Despite potential short-term volatility, Morgan Stanley views the market as possibly approaching the end of the rolling correction underway since summer. It retains an overweight allocation to global equities and an underweight position in core fixed income.
In currencies, the bank expects the yen, Swiss franc and euro to outperform the US dollar as investors become more cautious. The Australian dollar could lag because of its sensitivity to AI-stock sentiment, while targeted US tariff risks could pressure the Canadian dollar against lower-yielding currencies.
Key fiscal dates include the December 11, 2026 government funding deadline. Morgan Stanley expects public debt to reach its ceiling in March 2027, with the deadline for exhausting available financing measures falling late in the third quarter.
Congressional changes would not eliminate policy uncertainty: tariffs, export controls, trade policy and geopolitical decisions remain areas where the president retains direct authority.
