Elon Musk suffers political setback in 2026 midterms

Democrats’ landslide victory in the midterms marked a major rejection of Elon Musk and the artificial intelligence industry, as a broad backlash against U.S. President Donald Trump and his tech allies put their political influence — and debt-fueled data center construction — under greater scrutiny.

Musk, who spent a record of at least $474 million in the midterms, funneled $224 million, or nearly half, to Texas alone, according to a CNBC analysis of campaign finance records, only to see its favored candidates, Republican Senate candidate Ken Paxton and Gov. Greg Abbott, defeated in a Democratic surge.

The defeats shook markets overnight, sending EspaceX And Tesla falling stocks, both of which have thrived for a long time as part of Abbott’s business-friendly program. Meanwhile, broader tech stocks came under pressure as Democrats took control of Congress.

Across the country, voters have opposed the influence of billionaires and the growing power of tech companies, electing critics of the AI ​​industry and approving restrictions on the data centers that fuel its expansion.

“We need to get big money out of our politics, so no billionaire or trillionaire can buy our elections,” Democratic Sen.-elect James Talarico said in his victory speech, without naming Musk. “We must dismantle this economic system which only benefits the richest 1%.”

JC Lintzenich, a visiting senior fellow at the German Marshall Fund, highlighted Elon Musk’s massive spending in Texas, telling CNBC’s “Squawk Box Europe” on Wednesday that the results were “clearly a rejection of the aspect of Elon Musk that found its way into Trump’s orbit.”

Texas has become the home base for much of Musk’s empire. Tesla operates its largest vehicle plant in the United States outside of Austin, EspaceX launches rockets from its Starbase complex in South Texas, and Musk is pursuing additional investments in AI and semiconductor manufacturing.

These operations depend largely on state decisions regarding electricity, water, environmental permits, infrastructure and tax incentives. Democratic Governor-elect Gina Hinojosa – who campaigned against generous corporate subsidies, and Musk himself – will exert significant influence on these decisions.

Hinojosa called for a moratorium on new data centers, an end to tax breaks for the sector and requiring developers to cover their full electricity costs. In her victory speech Tuesday, she promised to take power from “powerful people who have been very comfortable running this state.”

Republicans still control the Legislature, limiting Hinojosa’s ability to revise state policy. But his administration could complicate Musk’s expansion plans with a stricter approach to permitting and business incentives.

Nationally, Musk’s America PAC has spent nearly $87 million in 44 federal races, according to a CNBC analysis of FEC filings. As of Wednesday morning, the Republicans they supported had lost 29 elections and won only three, with 12 still uncalled. More than $80 million — or 93 percent of its spending — went to races Republicans lost.

The result leaves Musk with fewer allies in a Democratic-controlled Congress that could investigate his federal contracts, his past leadership of Trump’s Department of Government Efficiency and his companies’ ties to Washington.

Congressional control could slow SpaceX’s lucrative and fast-growing government contracts, but Trump still controls executive agencies and holds veto power, limiting Democrats’ ability to reverse policies that benefit Musk’s defense technology companies.

These defeats are not the first time Musk’s political spending has failed to produce the desired result.

The America PAC has supported eight losing candidates for Congress in 2024, and last year Musk spent more than $20 million trying to elect a conservative in Wisconsin. Although Elon Musk promised last year to spend “a lot less” on politics, he ultimately became the largest known donor in the 2026 midterms.

Longtime Tesla investor Ron Baron warned in March 2025 that Musk’s political activism risked driving away customers, telling CNBC: “I don’t think it’s a good thing to alienate half the population.”

Others praised Musk’s close relationship with Trump and his influence on everything from regulations to Pentagon technology spending.

Musk wasn’t the only tech figure to spend big money.

OpenAI Chairman Greg Brockman and his wife Anna contributed $25 million to Leading the Future, a policy operation aimed at shaping AI regulation, according to FEC filings. Venture capital firm Andreessen Horowitz contributed another $50 million.

Although the industry has scored some victories – such as defeating New York lawmaker Alex Bores, a supporter of stronger AI protections, in a Democratic congressional primary – it has proven much more difficult to convince local communities.

In Ohio, Democrat Sherrod Brown defeated Republican Sen. Jon Husted after attacking his support for data centers. Democrats have spent nearly $28 million on ads critical of data centers, according to AdImpact.

In South Carolina, Democrat Annie Andrews defeated Republican Sen. Darline Graham despite a late-night ad campaign from Building the Future, a new data center industry super PAC that made Graham its first candidate to support. The group set aside $1.5 million in ads supporting Graham, while Andrews campaigned for a two-year moratorium on new data centers.

Nationally, campaigns and outside groups spent $173 million on data center ads during the 2026 general election, with ads almost entirely negative, according to AdImpact. Democratic advertisers accounted for $140 million of that spending. Voters also considered 41 measures related to local data centers on Tuesday, with at least 10 communities approving bans or restrictions.

The financial stakes are extremely high.

JPMorgan Asset Management estimates that building AI infrastructure could cost around $5 trillion by 2030, with around $2 trillion funded by investment-grade debt markets.

Projects cannot generate expected returns until they are fully operational. Delays in obtaining permits can delay completion and revenue, while higher utility and borrowing costs can increase project expenses and make expected returns more difficult to obtain.