Why the data center slowdown concern is overblown. Two stocks to buy amid the fear

Skip Navigation Markets Business Investing Tech Politics & Policy Video Watchlist Investing Club PRO Livestream Menu Key Points No, the data center boom isn’t over. Not one utility CEO we spoke with at the EEI conference is anticipating a slowdown in electricity growth expectations. Power Insider exclusive: Two utility stocks that stand to benefit if data center business leaves Texas. Our exclusive with Texas billionaire and U.S. Ambassador to Italy Tilman Fertitta. In this article FSLR CQP Follow your favorite stocks CREATE FREE ACCOUNT GET THIS IN YOUR INBOX FIRST: Subscribe to CNBC's "Power Insider" newsletter. POWER POINT The demise of data centers has been greatly exaggerated. So says every utility CEO and energy-focused investor we spoke with at the Edison Electric Institute's annual conference in Arizona. Here's why... There is a lot of misleading, misdirected, or straight-up incorrect information floating around about data centers and the AI buildout. I'm not going to dive into the old water-use story — you can do your own research on that — but rather focus this week on what the insiders know: Some newly elected politicians either don't have the power to stop the buildouts or, if they do, the buildout will likely just continue somewhere else. Ohio and Georgia are important states to watch with their new incoming political class, but for the sheer importance in size and scope, I'll focus on the energy and data center capital: Texas. Incoming Governor Gina Hinojosa and incoming Senator James Talarico both campaigned on promises to go after what they believe to be affordability issues around data centers. I say "what they believe to be" because it's unclear how much data centers may raise your electricity bill, if at all. First and foremost, data centers are largely a state issue, meaning officials elected to federal office have little control over outcomes, at least for now. In Texas, any cancellations or moratoriums on new builds will come from the statehouse in Austin. That's where current Governor Greg Abbott has already, and rather quietly, put his own " pause " on data center permitting. That delay has been underway for a few weeks. Also, in Texas, the Governor has less direct power than in some other states. The power the governor does have largely derives from the authority to appoint those in charge of the all-important permitting process. In the Lone Star State, that power lies with two agencies: the Public Utility Commission of Texas (PUCT) and the even lesser-known Texas Commission on Environmental Quality (TCEQ) . The PUCT regulates Texas' electricity, telecom, and water industries. It helps oversee growth of anything electricity-grid-related. So if a data center wants to connect to the public utility grid, it needs the commission's approval. Its chair — a pro-growth chap named Thomas Gleeson —is also on the board of Texas' electric grid powerhouse ERCOT and will serve his term with the utility commission through September 2029. Yes, three years from now. That agency gets involved when a data center or power provider wants to connect to the electricity grid. But what about facilities that are off the grid and have their own dedicated power sources? Texas has less control over what happens then. That said, it does have to authorize certain environmental permits, and that responsibility largely lies with the TCEQ. The TCEQ was " BBI " ( my own little term for "boring, but important" ) until data centers came along. It's not exactly the Alamo, but this obscure group — run by a regulator named Brooke Paup — is largely the "last stand" for permitting on those new builds. Paup was also appointed by Gov. Abbott and serves through next year. In other words, unless she and Gleeson step down or there is some way to oust them, the regulatory environment in Texas may not change much. The bottom line in this brief foray into the Texas regulatory swamp is to highlight that there are things for investors to consider around the data center/energy world that may not be at the top of the headlines. Important Note → Be mindful that I am an East Coast-based financial broadcaster and journalist, not an expert on Texas regulation or how the state operates. There may very well be things I don't know, things my sources aren't aware of, or other ways in which the new Governor and state House can assert power. For one, she recently said she may try to freeze electricity rates. Hint: that would be a terrible idea unless you want to damage the growth of badly needed new power sources like wind and solar. Disclaimer is done. Let's assume I am wrong on Texas and there is a larger push to slow or stop data center growth in the state. Conversations with some pretty smart people lead me to believe that if those facilities aren't built in that state, they will be built in another: Louisiana, Oklahoma, or another state. Sources tell me that Louisiana Governor Jeff Landry and his team are already working the phones, telling companies that his state would love to welcome new business. Same for Oklahoma. Both are gas-rich, have plenty of power, and are only too happy to grab any data center dollars. Now, a huge caveat. Let's acknowledge that not all data centers are going to be built… and never were. There are way too many plans to make them all happen. Some DCs were shelved before the election. Some others may soon be canceled, either for reasons of public pushback or otherwise. It's also not clear if we even need all the planned compute. There will be a time when companies realize they have enough — or at least enough for now — and turn off the spending taps. Goldman Sachs lays it out in a new note late this week: "The midterm election results pose only modest risks to AI investment, for now. We expect newly elected Democratic governors in states that account for over a third of planned US data center capacity to impose moratoria on new data centers. However, these will likely only impact projects not yet permitted, leaving the vast majority of planned 2027 construction unaffected. We therefore expect data center construction spending to remain strong next year, though moratoria that are stricter or longer-lasting than we expect pose downside risks." The firm adds that it still sees spending on AI-related hardware coming in around $1.4 trillion by the end of next year. In other words, the spending boom is going to keep going, at least for now. Another key point for all you energy- or utility-focused investors out there: While data centers are one huge driver of electricity demand, they aren't the only one. Electric cars, reshoring manufacturing, and the "electrification of everything" will also grow the need for more gigawatts. This is why we asked every utility CEO we spoke with at the EEI conference if they saw any slowdown in their internal electricity growth estimates. All gave the same answer: no. Not one hinted at a downturn. Not Exelon's Calvin Butler. Not Entergy's Drew Marsh. And not Drew Maloney, head of EEI. Of course, power demand is about more than just data centers, but it's still important for investors to hear it from the top. Side note: Many of you think I'm wrong about my "hot take" on data centers and the election. If you missed last week's Power Insider, this is how you responded to my X poll on the election and energy. Zoom In Icon Arrows pointing outwards So… why am I writing this week about AI and data centers? Because, as I've said before and will keep saying, AI and data centers are just energy stories in disguise. If they grow, energy demand grows. Demand for solar, wind, and natural gas grows. The economy grows. Because, after all, energy is the economy. Oh, and in the past week, I've flown from Newark to Rome to Chicago to Phoenix and back to Newark. My brain may be a little mushy, so bear with me. Grazie mille! Brian Zoom In Icon Arrows pointing outwards ACTIONABLE INS