Hey Income Traders,

Last Tuesday, Texas elected Democrats statewide for the first time in more than three decades, and data centers sat at the heart of it. Gina Hinojosa unseated Greg Abbott after campaigning on a moratorium on new data centers. James Talarico beat Ken Paxton for the Senate seat while calling for tighter rules on the same buildout. And Clayton Tucker, the first Democrat to win agriculture commissioner since 1986, said fighting data centers was key to his win.

It wasn’t just Texas. Democrats took both chambers of Congress. Voters in 10 states decided 41 local measures on data centers, and the data center side lost 40 of them. NBC’s exit poll found 56% of voters called AI and data centers a crucial or major factor in their vote for Congress.

Republicans weren’t exactly cheering for them either. Abbott spent the fall backpedaling, pausing new permits and calling for a ban on data centers near rural neighborhoods. An NBC poll in late summer found 57% of Republicans opposed a data center in their own area.

But I don’t think voters were really mad about the buildings.

For two years, AI has been sold to the public as a labor story, and sold badly. Corporate leaders have practically bragged about how much cheaper AI is than people. Salesforce CEO Marc Benioff said he took his support staff from about 9,000 to 5,000 because “I need less heads.” Block cut about 40% of its staff in February, pinned it on AI, and watched the stock jump 24%. Two weeks ago, Microsoft offered buyouts to roughly 60,000 employees, about a quarter of its workforce, while it poured money into AI.

Voters learned a hard lesson from all that: profits can grow without new jobs, and Wall Street cheers the cuts. When one AI agent can do the work of 5, 10 or 20 people, and the people building it keep saying so out loud, a new data center down the road starts to look like a machine built to take your kid’s first job while it pushes up your power bill. In that world, voting against the data center feels a lot like voting for the American dream.

The irony is that jobs numbers look fine. October added 165,000 jobs, more than double what economists expected, and unemployment fell to 4.1%. Dig one layer down, though, and you’ll see why people are nervous. The broader U-6 rate, which counts discouraged workers and people stuck in part-time jobs, climbed from 7.6% to 7.9%. Folks who lose a paycheck are having a harder time replacing it, and that’s the fear voters carried into the booth.

That’s a tough backdrop for the buildout trade. On Thursday, the Dow dropped 1,833 points and wiped out Wednesday’s entire post-election rally. The Nasdaq fell 5.5% and Nvidia lost about 9%, with data center names leading the way down.

Still, pushback chokes supply a lot more than it dents demand. Every blocked permit makes the compute already running more valuable. Gary Cohn made that point on CNBC the morning after the election, saying the data centers already in the ground are worth more now than they were the day before. That’s quite a turn from a guy who spent the prior week warning about a data center glut.

A slower, costlier or offshored build hurts the companies that have to spend, borrow and build. The suppliers selling into that build feel it a lot less, since they get paid wherever it ends up. Last week’s vote left compute every bit as necessary and a lot scarcer, and scarcity is where the pricing power lives.

This won’t be easy, but some big trades are forming as we speak.

Here for a good time… AND a long time,

Hans