Musk’s $445 Million Gamble Backfires as Democrats Sweep Midterms
TREE NEWS reports: Elon Musk’s massive $445 million political investment in Republican midterm campaigns appears to have failed spectacularly. Democrats have not only retaken the House but also secured key Senate seats, with Decision Desk HQ projecting they will control both chambers of Congress. The outcome deals a significant blow to Musk’s business empire, with Tesla and SpaceX shares falling about 1.8% in after-hours trading, while Nvidia and CoreWeave also slipped and Nasdaq 100 futures dropped over 2%.
Record-Breaking Election Spending
This midterm cycle was the most expensive in U.S. history, with total spending expected to approach $12 billion, a 30% increase from 2022. Musk personally contributed nearly $445 million through federal political committees, mostly to his America PAC and the Senate Leadership Fund, making him the largest individual donor. His spending was heavily concentrated in Texas, where America PAC invested over $45 million in the Senate race, and in Michigan and Ohio, each receiving about $10 million. Other billionaires also played big: Jeff Yass and the Uihleins each donated over $100 million to Republican causes, while George Soros’s groups and Michael Bloomberg gave heavily to Democrats. Crypto companies Ripple and Coinbase together contributed $63 million to pro-crypto super PACs.
Policy and Regulatory Risks Loom
The Democratic sweep introduces two major risks for Musk’s companies: stricter AI regulation and potential obstacles to the proposed Tesla-SpaceX merger. Musk is reportedly aiming to announce the merger in the first half of next year, but congressional resistance could delay or block the deal. “If there is a Democratic sweep, both stocks face significant headline risk,” said Vikram Rai of First New York. Historically, Tesla shares surged over 90% after Trump’s 2024 victory but gave back gains as Musk’s relationship with Trump complicated and investor fatigue with his DOGE role set in. Tesla had rebounded 34% from its July low before this election.
Texas Election Spooks AI Infrastructure Sector
The election’s impact on tech is particularly acute in Texas, where Democrat Gina Hinojosa is projected to win the governor’s race. Hinojosa has made data center regulation a top priority, calling for an immediate moratorium on new data center permits and repeal of the 20-year tax exemption for hyperscale data centers, which she says costs the state at least $1 billion annually. Texas is poised to become the world’s largest data center market by 2030, with 13.3 gigawatts of announced projects, including a facility billed as the world’s largest and four Google data centers. The policy shift threatens companies like Nvidia and CoreWeave that rely on data center capex. Similar political pressure is mounting in Ohio, Wisconsin, and Pennsylvania, signaling that AI infrastructure regulation is becoming a state-level battleground.
Key Takeaways for Investors
- Tesla and SpaceX face headline risk: The Democratic sweep could slow AI-related initiatives and complicate the proposed merger, keeping both stocks volatile.
- AI infrastructure stocks under pressure: Nvidia, CoreWeave, and others exposed to data center buildouts may see increased regulatory scrutiny, especially in Texas.
- State-level politics matter: The backlash against data centers is spreading across states, creating a new layer of risk for AI infrastructure investments.
- Fundamentals will reassert: As election-driven narratives fade, investors should focus on earnings and execution, particularly for Musk’s companies.
