The tape didn’t care about the Hail Mary. Tesla (TSLA) shed 3.6% in Wednesday’s session, while SpaceX shares slipped 3.2%, leaving Elon Musk’s portfolio bleeding exactly when the broader market was surging. It was a stark divergence. While the S&P 500 climbed 1.5% and the Dow Jones Industrial Average jumped 1,325 points (2.6%), Musk’s stocks got sold off. The Nasdaq Composite also rose 1.7%, capping off a session where capital rotated away from the man who spent nearly half a billion dollars trying to keep Texas red.
The cause? A resurgent Democratic Party that now controls both chambers of Congress. Gina Hinojosa’s victory over Greg Abbott in Texas ended three decades of Republican rule, a direct blow to Musk’s political strategy. He had urged his X followers to vote Republican as late as Tuesday. Now, he faces a Congress that has already signaled it’s ready to dig into his operations. Robert Garcia, the incoming chair of the House Oversight Committee, sent a two-word warning to Republicans and their allies on Tuesday evening: “Lawyer up.”
The business implications are tangible, specifically regarding infrastructure. SpaceX is targeting a massive expansion of its data-center capacity, aiming to scale from 1.7 gigawatts at the end of September to 3 gigawatts by year-end, with a goal of 13 gigawatts next year. These facilities, including the Colossus and Colossus II hubs near Memphis, are central to SpaceX’s AI revenue and its first profitable quarter as a public company. But Democrats are pushing for construction moratoriums and stricter scrutiny on electricity costs, a move that could stall this growth. SemiAnalysis has identified over 9 gigawatts of planned capacity in the pipeline, all now at risk of regulatory friction.
Texas adds another layer of friction. Hinojosa has already sued to obtain emails between Musk and Abbott, accusing the outgoing governor of favoring Musk with state deals. She has called for an immediate halt to new data-center projects until community protections are strengthened, effectively threatening the tax breaks and land deals Musk relies on. Even the proposed expansion at Starbase in Boca Chica faces resistance, with Hinojosa opposing the potential sale of beachfront state park land to SpaceX. “Texas is not for sale,” she stated last month. Musk, for his part, posted on X that “data centers in space looking pretty appealing right now,” hinting at orbital solutions as a workaround, but that’s years away from mitigating near-term regulatory headwinds.
Market sentiment is shifting faster than the political landscape. Jake Dollarhide, CEO of Longbow Asset Management, told Reuters that the Democratic sweep puts pressure on tech and AI growth figures. “Musk was the Hail Mary for Republicans... Unfortunately, his large infusion of cash... could not overcome higher utility bills, prices at the grocery store and prices at the gas pump,” Dollarhide said. Investors are now pricing in the risk that the “wild, wild west” era of AI infrastructure expansion is ending, at least in Washington and Austin.