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Republicans across the country woke up licking their wounds after the worst midterms drubbing in 50 years, but few politicos were bigger losers than Elon Musk.

The CEO of Tesla (TSLA -2.29%) and Space Exploration Technologies (SPCX -4.54%) has gone all-in with the Republican Party since COVID and spent nearly $500 million on midterm races nationally and around $200 million in Texas.

That spending delivered zero in return as voters in Texas, Musk's adopted home state and the headquarters of both SpaceX and Tesla, voted for a slate of Democratic candidates, pushing back against data center land grabs and billionaire interests.

While stocks soared on Wednesday with the Nasdaq Composite up 2% after investors had time to digest the results overnight, Musk's two trillion-dollar companies were well into the red. SpaceX was down 3.4% as of 1:11 p.m. after falling as much as 7% in pre-market trading, while Tesla was off 2.3% at the same time.

Election consequences are not easy to predict, but it's more than just Musk putting his thumb on the scale that has his stocks on the losing end.

The data center debate takes center stage

Texas has more data centers than any other state except Virginia, and one of the biggest takeaways from Democrats winning every statewide race in Texas is that voters want more say on data centers.

Texas Governor-elect Gina Hinojosa made the data center boom a key part of her campaign, and they are likely to face significantly more oversight, at least in Texas. Among her proposals for data centers in the state are that they not be subsidized, not jeopardize community water supply, and ensure that they don't raise electricity and water prices on surrounding communities. Hinojosa also campaigned on a temporary moratorium on data centers to protect the power grid and local water supplies.

Those measures aren't draconian by any means, and it's unclear where any restrictions on data centers in Texas will ultimately land.

Musk's companies are heavily dependent on data centers on Texas, and SpaceX recently began its Terafab mega-project in Grimes County, Texas, which could cost as much as $119 billion. SpaceX's plans to add 10GW of AI compute by the end of next year, which already required a gargantuan build-out, now seem less likely to be achieved.

Additionally, the election result could disrupt the desired combination of SpaceX and Tesla, though Democrats won't have direct control over antitrust regulations.

Musk's unique position

Musk and his companies have become a flashpoint on a number of issues, both in politics and beyond, but SpaceX and Tesla are both valued in the trillions of dollars largely because of Musk's own forecasts around AI, in areas like robotaxis and Optimus for Tesla and in data centers and infrastructure for SpaceX.

Investors have put a ton of faith in his ability to achieve those aims, and that looks more difficult for him after the election results, as his companies are likely to face increased oversight now that he's out of favor with the party on the rise in both his home state and nationally.

It's difficult to extrapolate the consequences of the election for Musk and his companies, and investors often overreact to election results. However, there's a good reason why Tesla and SpaceX are down today, while the rest of the market is up.