# The Compound and Friends: The Data Center Top Was a Tax Increase in June

Source: Realpha Blog (blog.getrealpha.com)
Original article and charts: https://blog.getrealpha.com/en/blog/compound-2026-11-06-you-ain-t-seen-nothing-yet-with-daniel-clifton/

> Notes on the 6 November 2026 episode of The Compound and Friends with Daniel Clifton, who runs a Washington policy research team, on the market after the 3 November midterms. His throughline is data centers: 40 local ballot measures on them that night, 38 of which went against the industry, and he dates the relative peak in AI hardware stocks versus the S&P 500 to the third week of June, when Virginia passed a $600 million data center tax and the Texas governor imposed a moratorium. He also brings the other side: since 1938 the S&P 500 has never fallen in the twelve months after a midterm, averaging 14.8%. All figures are as stated on the show. Educational listening notes only — no investment advice, no price targets, and the judgements here may be wrong.

Published: 2026-11-07
Locale: en
Tags: midterms, podcast-notes, data centers, semiconductors, policy risk


![A small-town school gymnasium at night, a handout open on an empty folding chair in the foreground, rows of residents with raised hands receding into the depth of the hall, and through the high windows at the far end the low glow of a data center out in the dark](/covers/compound-2026-11-06-you-ain-t-seen-nothing-yet-with-daniel-clifton-cover.png)

> The people are the root of the state; when the root is firm, the state is at peace.
>
> —— *Book of Documents*, "Songs of the Five Sons" (pre-Qin; my own translation)

The 6 November 2026 episode of *The Compound and Friends* had on Daniel Clifton, who runs a Washington policy research team, to talk about the market after the 3 November midterms. His throughline is data centers: there were 40 local ballot measures on them that night and 38 went against the industry, and he dates the relative peak in AI hardware stocks versus the S&P 500 to the third week of June — the week Virginia passed a $600 million data center tax and the Texas governor imposed a moratorium. He also brings the other side of the ledger: since 1938 the S&P 500 has not once fallen in the twelve months following a midterm election, with an average return of 14.8%. That historical average assumes the Texas energy audit in December and the governors' state-of-the-state speeches in January do not tighten the terms again.

## February 2026: he was here before, saying the part nobody wanted

Clifton laid out the political risk to data centers on this show back in February, when the Nasdaq was going straight up and nobody cared. He says the tell came in January, in a diner in Manassas, Virginia — the densest data center country in America and politically Trump territory — where the whole room was complaining about data centers. What stopped him was who was complaining: Republican voters.

He kept travelling, and in rural areas the subjects were diesel, fertilizer, tariffs, data centers. Josh asked whether people hate the physical buildings or the idea that these facilities will erase middle-class jobs. Both, Clifton said — and what he gets asked at town halls is "am I going to get cancer" and "you're destroying the rural character of my neighborhood."

He offers Gilead as the contrast. Gilead cured hepatitis C — cured, not managed — which saved the federal government hundreds of billions, and they forgot to go tell anyone in Washington about it. So the people writing the checks, managed care, hospitals, state governments, were the ones shouting that $80,000 a course was an outrage. His conclusion is the old Washington line: if you're not at the table, you're on the menu. Tech's version of the last few years has been "we're creating jobs, we're fine."

## The third week of June: Virginia raises taxes, the stocks top

Virginia changed governors last year. She had a Chamber of Commerce endorsement when she was in Congress, she is no Bernie Sanders liberal, and her framing was: our people are hurting, their electricity prices are up. In the third week of June the state passed a $600 million data center tax. Within two days Blackstone pulled the largest data center project in the state; two weeks before the taping, Amazon cancelled four projects it had already zoned in Northern Virginia.

That same week, the Texas governor said something had to be done and put a moratorium in place. That week, Clifton says, was the relative peak for data center stocks against the S&P 500.

![A relative-strength curve climbs, turns over in the third week of June, and heads down, with two event labels — a Virginia tax increase and a Texas pause order — hanging below the turning point, and the November 3 ballot marked at the right end.](/figures/datacenter-peak-june-third-week-en.svg)

He wasn't worried in the first half of the year, and his reason was T. Boone Pickens' old rule about fracking: nobody cares if New York bans it as long as Pennsylvania, Texas and Oklahoma keep drilling. Data centers ran on the same rule — the market assumed Texas would absorb whatever other states blocked. Texas was the last piece holding that logic up.

## Election night: forty ballot measures, thirty-eight said no

There were 40 local data center measures on the ballot and 38 went against the industry. In one Meta case the town not only rejected the project, it recalled the three city commissioners who had approved it. Clifton says the only opposition he has sat in that ran hotter was George W. Bush trying to privatize Social Security in 2005.

![Forty dots are laid out eight across and five down, thirty-eight of them colored to mark outcomes unfavorable to operators and only two in the other color, with a note on the right that one of those cases also recalled three city commissioners.](/figures/forty-ballots-thirty-eight-against-en.svg)

The national numbers are bigger. In 35 years, five Senate candidates had won a state the other president had carried by more than 10 points two years earlier. Six did it in one night. Since the financial crisis there have been 11 federal elections and voters have thrown out the party in power in ten of them, a run not seen since Reconstruction.

Clifton's explanation is the growth rate. The economy grew at 3% before the crisis and has sat at 2% for eighteen years; at 3% instead, American households would be $5.6 trillion richer. His team adopted a no-polls rule this year and watched how people actually voted in special elections. Walking out of Iowa in June he made two calls: fewer data centers get built, and Republicans lose the Senate.

## The two days after: semis destroyed, the three big clouds untouched

Michael described the whipsaw. Monday after hours, when the Texas governor's race flipped, Nasdaq futures were down 3%; he woke up to futures ripping. The next day the S&P rose 1.7% while semis got killed. Of 25 semiconductor names, 20 fell more than 10% over two days, NVIDIA was 21% off its high and into a bear market, and Taiwan Semi dropped 9% — a stock that went sideways even while memory names were cut in half. By the time the show reached the close they were quoting QQQ down 6.4% and the S&P down 4.4%.

The other side sat on the same screen: the three largest clouds were down less than 2%. Josh put it in one line — if less compute gets built, whoever already owns compute is worth more today than two days ago. Clifton added the version he says makes clients look at him like he's crazy: Meta is a Democratic stock. The market's biggest worry about Meta has always been free cash flow, and politics putting handcuffs on Zuckerberg's spending is good news for the shares.

![On one quote board two groups of downward bars sit side by side: the semiconductor group on the left drops deeply while the top three cloud names on the right fall only a short stub, leaving a very large difference in height.](/figures/two-layers-chips-versus-cloud-en.svg)

The most expensive bill of those two days landed on Elon: $110 billion of personal losses in two days, after spending $400 million on the election. Money didn't work this time, Clifton said — most of the winners won without it.

## Where this stands now: two December dates, January speeches

The Texas moratorium is still in place. An energy audit lands 10 December and there is a public hearing on 17 December. The original script was: audit comes out, moratorium lifts, make modest changes, off to the races. Now the incoming governor holds both the audit and the legislature, and her position is that the moratorium stays until the legislature writes taxes and regulations for data centers. The Texas legislature sits only January through June in a two-year session, and Clifton plans to be in Austin from April to June watching it.

![A timeline runs to the right while an upper and a lower boundary, wide apart on the left, step inward until they close into a narrow slit, with four dates marked at the points where the narrowing happens.](/figures/texas-outcome-range-narrowing-en.svg)

There is a federal leg nobody has priced yet: Democrats intend to use the debt ceiling as leverage to take away 100% expensing on data center capital equipment.

Louisiana is going the other way. Projects there can go behind the grid — the data center's power is separated from residential load, so it never shows up on a household bill — plus the state is embracing the jobs, and there has been actual PR, things like teacher salaries moving to $50,000. Clifton wrote a study in April: in counties with data centers, the facilities pay a large share of residents' property taxes, Loudoun County's property tax rate has come down ten years in a row, and the gap in home values between counties with data centers and counties without runs around $20,000 per homeowner. He took that to a union pension conference and got the only standing ovation of his career; they booked him for the following year on the spot. He gave the same material in Iowa and got asked about cancer and water. He thought the problem could be solved with economics, he says, and then found that what worried people was health and ecology, not money. As a footnote, the industry has started calling them "compute campuses," and his review of the rebrand is: come on.

![Two panels sit side by side: on the left a data center and a home share one line and the cost shows up on the bill, while on the right the two lines are separated and nothing shows up on the household bill.](/figures/behind-the-meter-versus-shared-bill-en.svg)

## If you're sitting in this trade: ask which layer you own

If your AI-adjacent positions bled over those two days, I'd swap the "cut it or hold it" question for "which layer did I buy." Clifton is blunt about it: the data center trade has always been about the parts that go into the data center — industrials, data center real estate, power generation. Those got hit after the election, and he says that was the right reaction. The three companies that own the compute itself were down less than 2%. Same headline, two layers moving opposite ways.

The second layer is the pace of pricing. His point is that the range of outcomes is too wide right now: you need the governors' January speeches to know what each of them intends. The range narrows first, then you get a price. So part of this selloff is shooting first and asking questions later.

The third layer is the one I care about most. Multiples on the large AI supply-chain names have been compressing for twelve months, and the stocks held up because earnings grew faster than the multiple shrank. Josh did an arithmetic he openly said he was making up: if NVIDIA's earnings over the next twelve months come in 5% below current expectations, the stock could fall 40%. The use of that arithmetic isn't the two numbers, it's what it shows about how sensitive a valuation held up by earnings growth is to a small earnings revision. And 10% fewer projects is an earnings revision.

![On the left a falling valuation multiple and a rising earnings line cancel each other into a flat share price, while on the right a small step down in earnings maps to a long step down in the share price.](/figures/earnings-revision-leverage-en.svg)

## The other sore spot: why am I always the last to know

Walking out of Iowa in June, Clifton already knew fewer data centers would get built. He spends 140 days a year on the road, and his method is to make people tell him what's on their mind — a habit he credits to Byron Wien: always make people tell you what they're thinking, because that's how you learn.

Josh admitted on air that this is his blind spot: he assumed everyone knew what was going on and simply didn't care. The CNBC All-America Economic Survey gave a different answer, with 36% of respondents naming government corruption as one of the country's two most important issues — first place, ahead of groceries, gas and the border.

None of this trail is gated. Ballot language, town hall minutes and lobbying disclosures are public — Clifton's team reads the lobbying disclosures company by company and found Kimberly-Clark, which makes diapers, lobbying on energy permitting reform and R&D tax incentives because it is building plants in America. This material never reaches the business pages, and it runs ahead of them.

Three questions bring it back to your own process: for the stock you hold, who signs the next approval, how often does that person face an election, and what have people in that district been complaining about lately?

## Worth a look

- *The Compound and Friends*, episode of 6 November 2026 — the source for these notes
- Daniel Clifton's February 2026 appearance on the same show, where he first raised data center political risk
- His April study on data centers and local property taxes
- The CNBC All-America Economic Survey quoted on the show for the corruption ranking
- The Texas energy audit of 10 December and the 17 December public hearing, both trackable public dates

## The one thing to take with you

**The reasons you prepared and the reasons someone objects are often on two different lists.**

This is what Clifton walked into all year. He came up as a public finance economist, holding something he could calculate: the data center pays your property taxes, the rate has fallen ten years running, your house is worth $20,000 more. He brought that to Iowa and got asked about cancer and water. He has given talks on the most contested political topics alive without anyone getting angry, and nearly got run off a stage for mentioning data centers. His own account is that he thought economics would solve it, and the other side was never standing on that list.

![Two offset tables sit side by side, the left one listing money-based reasons and the right one listing health and environmental worries, with a gap between them that never lines up.](/figures/two-tables-that-do-not-overlap-en.svg)

This holds with no investing in it. One thing I've tried: pick an objection you think is irrational — a family member who won't replace the old car, a colleague blocking the process you wrote, parents who won't move — and today ask one question, "which part of this worries you most," then don't answer back, don't argue, don't lead with your three reasons, just write down what they say. Most of the time you find the three reasons you spent six months preparing were answering a different question.