SpaceX, Tesla stocks tumble as Democratic sweep raises questions on merger prospects, AI build-out

SpaceX ( SPCX ) and Tesla ( TSLA ) stocks extended declines on Thursday, each dropping roughly 9%. Shares of the Elon Musk-led companies were pounded after Democrats won control of the House and Senate this week, raising concerns over regulatory hurdles for data center buildouts in the US and merger aspirations between the two companies.

The Democratic win in Texas, where both SpaceX and Tesla are headquartered, is at the center of the concern. The state flipped blue at the gubernatorial level and saw the Senate seat won by James Talarico, with whom Musk got into fierce spats on social media leading up to the elections.

"We will believe a SpaceX/Tesla merger happens but now faces a much tougher regulatory roadmap to get this deal done in 2027 given this new political blue roadmap in DC/Texas," Yorkville's partner and managing director Dan Ives wrote on Thursday.

Elon Musk said on SpaceX's third quarter earnings call last month that he thinks merging the company with Tesla ( TSLA ) would be a good idea and revealed that both companies are exploring a potential deal.

Earlier this year, Musk also announced the launch of a Terafab, a massive semiconductor manufacturing complex in Texas that would supply SpaceX and Tesla.

Worries over a slowdown in data center build-outs also dampened shares of Texas-based SpaceX, which has increasingly leaned into AI compute as a revenue source.

Ives said while Big Tech and hyperscaler capex should still easily exceed $1 trillion in 2027, the growth rate into 2028 "will clearly moderate significantly as the data center buildout comes at a much slower pace given the political map, especially in the state of Texas."

On Wednesday, Goldman Sachs analysts also calculated, "Democratic wins at the state and local level are likely to lead to short-term data center moratoria, potentially affecting about 45% of planned US data center capacity expansion.