Donald Trump’s plans to expand infrastructure to produce artificial intelligence in the US could face years of delays with the Republican-controlled Texas statehouse poised to pass legislation that imposes regulatory hurdles on data centers.
The Trump administration earlier this year announced that a joint venture called Stargate would construct a total of 20 data centers to provide computing power for AI as part of an effort to help the US compete against China for leadership of the technology and spur investors to pursue AI projects.
The companies behind Stargate – OpenAI, SoftBank, Oracle and MGX, an investor backed by the United Arab Emirates, which together have pledged up to $500bn – chose Texas, with its loose regulation and pre-existing energy infrastructure for the first data center.
But the construction of future data centers to support Trump’s AI agenda faces headwinds as a result of the Texas legislation SB6, which introduces new regulatory measures including a six-month review process in addition to the existing 6-18 month evaluation period with the goal of protecting its own power grid in the face of storms.
The effects of the proposed bill are two-pronged: the regulatory measures could result in a maximum 24-month approval process, while the requirement to pay additional fees to the Texas grid operator and install backup generators would dramatically raise construction costs.
That could lead tech companies to scale back planned construction of data centers in the state, according to equity analysts. Stargate, for instance, has started building its first 10 data centers in Abilene, Texas, but it is unclear if the second set of 10 would be subject to the bill.
And if tech companies do not build in Texas, they might not build the data centers at all, directly hampering Trump’s AI initiative. Other states, from Wyoming to Wisconsin to Tennessee, have courted those construction projects, but lack the infrastructure that exists in Texas.
“These heavy-handed mandates risk stifling investment on exactly the infrastructure needed for Trump’s AI initiative,” said Vance Ginn, who was the associate director of economic policy at the White House office of management and budget in Trump’s first term and is based in Texas.
The bill, which is one of the legislative priorities of the Texas lieutenant governor, Dan Patrick, and has already passed the Texas state senate, is aimed at avoiding a repeat of the effects of Winter Storm Uri in 2021, which knocked out power for days, leaving millions without heat. The storm, during which at least 246 people died, exposed reliability issues with the state’s energy grid.
“Senate Bill 6 actually ensures President Trump’s Stargate Plan is a success,” Patrick said in an emailed statement. “We have made clear we are in lockstep with the President on his goal to make America number one, and dominate China on AI, data centers, and cryptocurrency.
“These industries understand they will have to supply their own power needs and are diligently working toward that goal so costs are not disproportionally shifted onto residential and small business customers,” Patrick said, noting that Trump endorsed him for re-election as recently as Thursday.
Republicans currently control the Texas state legislature and even critics of the bill acknowledge that another widespread power outage is perhaps the one political issue that has the potential to undercut the GOP majorities. Several government officials and those who controlled the power grid were fired or replaced after the failure.
But the prospect of greater regulatory hurdles, coupled with the global slowdown in computing infrastructure development and the additional macroeconomic uncertainty stemming from increased construction costs related to Trump’s tariff plan, may have far-reaching ramifications.
Microsoft has already abandoned a number of data center projects in the US that included lease cancellations and deferrals, according to a research note from analysts at TD Cowen, although Microsoft said it was still on track to invest $80bn in data centers in its fiscal year that ends in June.
The Alibaba chairman, Joe Tsai, last month also warned of a potential bubble with data centers, suggesting new projects may exceed demand for AI services.
Meanwhile, Trump’s measures currently impose a 10% tariff on all imports and a new 125% tariff on imports from China announced on Wednesday. Many components used in data centers, from raw materials like steel to goods such as electrical transformers, are produced outside the US.
The investments into AI come as DeepSeek, a disruptive new Chinese company, emerged seemingly out of nowhere in January and released a series of AI models that were developed in a fraction of the time of those made by US companies, causing alarm in Silicon Valley over the broader global AI arms race.
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