How the Midterms Could Deflate the AI Bubble
Democratic victories in Congress and the states could constrain Big Tech and slow an investment boom that has become vital to US growth. A commentary by Moreno Bertoldi, and Marco Buti
Marco Buti will speak at the IEP Bocconi Annual Event, “At the Table or on the Menu? Europe, Middle Powers and International Order”, on 18 November 2026 in Milan. He will join the panel on technology, industrial policy and digital sovereignty.
“Guess my election-interfering space lasers didn’t work this time,” Elon Musk joked as he commented on the results of the US midterm elections.
More than his space lasers, it was the billions of dollars that he and the broligarchs of Big Tech, cryptocurrency and fossil fuels donated to support Republican candidates that failed to deliver. It must be said, however, that without that money, the GOP’s defeat would have been even more crushing.
The US midterms were a referendum not only on Donald Trump but also on the crony capitalism he has established since returning to the White House. It was a referendum he lost decisively.
It is too early to say what the deeper implications will be for Trump’s crony capitalism, or whether this marks the beginning of its downfall.
What is clear is that the political wind has shifted and voters have strongly rejected this form of capitalism and the corruption that comes with it.
With the new Congress, the Big Tech oligarchs will no longer have a free hand and will have to be much more careful in their dealings with the president and his administration.
Many Democratic lawmakers have made investigating potential cronyism and corruption involving corporate America over the past two years a priority.
At the congressional level, however, despite their electoral breakthrough, Democrats do not have the numbers in the Senate to pass laws regulating artificial intelligence (AI): it would normally take 60 of the 100 senators to overcome a filibuster.
Trump has also threatened to veto such legislation if it reaches his desk, raising the threshold to a two-thirds majority in both chambers to override him.
Trump needs the AI investment boom to continue if he is to avoid being left with “European” rates of growth. He must also prevent, or at least delay, the bursting of the speculative bubble in the sector, which would inevitably cause a recession and perhaps even a financial crisis.
Yet although Democrats’ room for manoeuvre in Congress is limited, the midterms have also produced a political realignment at state level.
Traditionally Republican states such as Texas, Ohio, Iowa and Georgia have elected Democratic governors.
These states have in common a high concentration of data centres and strong voter opposition to them, including among Republicans. Democratic candidates campaigned vigorously against the facilities, and their stance paid off.
As a result, in the coming months these governors are highly likely to follow their counterparts in states already led by Democrats, such as Virginia, California and New York, and introduce tighter regulation, if not moratoriums, on such investment.
Big Tech is unlikely to be able to relocate data centres on a massive scale to states that remain Republican. There are logistical reasons: although concentrated in rural areas, data centres cannot be built in the middle of nowhere.
There are also political reasons: the remaining Republican governors would risk losing re-election if they allowed a massive influx of data centres into their states.
Add to these developments the fact that AI value chains are already under strain from excessive borrowing by companies in the sector, the high interest rates they must pay and their difficulty in making existing investments profitable, and a slowdown in the recent frenzy of investment becomes likely.
This will probably slow US growth over the next two years and lead to a significant correction in Big Tech share prices.
On the positive side, a slowdown in the headlong AI race might allow the speculative bubble to deflate rather than burst, avoiding damage to the financial sector.
Slower growth in AI investment is, however, a necessary but not sufficient condition for that outcome.
The bursting of the AI bubble remains a sword of Damocles hanging over the world economy.
A previous version of this article was published in the Italian daily Il Sole 24 Ore
IEP Bocconi does not express opinions of its own. The opinions expressed in this publication are those of the authors. Any errors or omissions are the responsibility of the authors.
