The bad news for Microsoft in the Blue Tsunami

Elections have consequences — and big elections have big consequences. Few have been bigger than last week’s US midterms, featuring a Blue Tsunami that swept aside Republican control of Congress and signaled the end of Trumpism.

Those consequences will especially be felt by Big Tech and Big AI. Voters made it clear that they don’t want data centers in their backyards. They voted for candidates who vowed to rein in AI, and those who promised to investigate the cozy relationship between tech companies and President Trump. And they voted for candidates who promised to put an end to rampant government corruption tied to tech billionaires.

Microsoft didn’t go all-in on Trump as so many Big Tech firms did. The company held fast to core values like diversity, equity, and inclusion in its hiring and employment practices. Microsoft CEO Satya Nadella didn’t attend Trump’s inauguration as other tech CEOs including Meta’s Mark Zuckerberg, Amazon’s Jeff Bezos, Google’s Sundar Pichai, and Tesla and SpaceX CEO Elon Musk did. He didn’t fawn over Trump like Apple’s Tim Cook, who gave Trump a 24-carat gold plaque and attended the gala White House screening of the Amazon-funded Melania documentary held on the day US Immigration and Custom Enforcement (ICE) agents murdered Alex Pretti in Minnesota.

Microsoft even fired its law firm because the firm agreed to provide Trump with $125 million in pro bono work, replacing it with a firm that sued Trump.

But in other ways, Microsoft has played nice with the Trump administration, including donating millions of dollars for his White House ballroom project.

So Microsoft is no more protected than other tech companies against what comes next under the Democratic Congress. In this column I’ll look at the potential bad news for the company. In the next I’ll look at how Microsoft might benefit from the election.

Investigate, investigate, investigate

The voting was barely over when top Democratics made clear that one of their first orders of business would be investigations and public hearings into Big Tech and Big AI. Microsoft will be among the companies investigated.

Two days after election day, Senator Richard Blumenthal demanded that the FCC and tech companies including Microsoft, Apple, Meta, Google, Nvidia, Amazon and others turn over documents related to the companies’ donations to Trump for his new ballroom. That’s part of an investigation that will look into conflicts of interest and quid pro quos. The Washington Post reported that Microsoft donated $10 million to the project.

If the companies didn’t turn over the documents, Blumenthal warned, they’d face subpoenas when he becomes chair of the Permanent Subcommittee on Investigations when the new Congress convenes in January.

That’s only the first investigation of many to come. Senator Ed Markey, who has locked horns with Microsoft and other tech firms in the past, posted on X on election night: “They are going to need to plant new forests for all of the subpoenas we’ll be printing.”

No free ride for data centers

One of the midterm election’s biggest issues was the data centers Microsoft and other AI giants have been building. Critics say the centers increase electricity costs, and that residents are subsidizing tech companies by bearing those higher costs. “Data centers raised wholesale [electricity] prices by 6.9 percent nationally by 2025,” the Federal Reserve Bank of Dallas reported.

Critics also complain of data centers’ water use, noise level, pollution, and taking away both open space and local control from communities.

Forty out of 41 local ballot initiatives against the centers won. Democratic governors, senators, and state officials promised crackdowns. Darrell West, a senior fellow at the Brookings Institution, a think tank, told the New York Times, “Expect a tsunami of new rules and oversight.”

That’s bad news for Microsoft. The company has already said that it can’t build data centers fast enough to meet demand for its AI services. Microsoft CFO Amy Hood said on the company’s Q1 2026 earnings call that Microsoft can’t keep up with demand for Azure AI services, because it doesn’t don’t have enough computing power.

With so many local, state, and federal officials pledging during the election to crack down on data centers, Microsoft should expect it to become more difficult to build them.

AI under the microscope

Trump and Republican officials have been all-in on AI and against any government oversight. They’ve been big cheerleaders for the technology and fought hard to make sure AI development remains unfettered. Trump even signed an executive order blocking states from regulating AI.

With a Democratic Congress, and with many statehouses across the country now controlled by Democrats, expect big pushback against that order, along with plenty of attempts to rein in AI.

The Hill reports, “Democrats are making commitments to make artificial intelligence regulation and the investigation of companies a key priority as they prepare to take control of the House and Senate after Tuesday night’s election sweep.”

That regulation will cover everything from AI-related job losses and AI safety problems to protecting intellectual property from being hoovered up for free by AI companies to train AI models.

All that means Microsoft, like other AI companies, may not be able to operate freely anymore. There may be slowdowns in AI development, rules about AI safety, and more.  

The bigger the AI company, the more they’ll feel the impact. Microsoft is one of the biggest, so it’ll feel a lot of pain.

ICED out

One of the more surprising results of the midterms was how many people across the political spectrum, from conservatives to progressives, cited ICE as being out of control and want it held accountable.

Peter Polos, a 73-year-old New Jersey physician, summed it up this way for the New York Times: “Saying he was going to secure the border is one of the reasons Trump got elected. But he didn’t say he was going to secure the border by knocking people down in the street, throwing them in a car, and taking them away.”

Under Trump, ICE’s budget has skyrocketed: a baseline budget of $10 billion, pumped up by a $75 billion supplement in 2025. (By way of contrast, the Justice Department, which includes the FBI, has a $35 billion budget.)

Microsoft has been one of the recipients of the ICE spending spree. An investigation by The Guardian and its partners +972 Magazine and Local Call found that ICE stores vast amounts of data on Microsoft’s Azure cloud storage and uses Microsoft AI tools to analyze it. It also found that ICE uses Microsoft productivity tools and might be running its own tools and systems on Microsoft servers.  

The Democratic Congress will certainly slash ICE’s budget. Microsoft may lose a significant revenue stream.

The upshot

The midterm election wasn’t just a reckoning for Trump, Republicans, and MAGA supporters. It’s one for Microsoft and Big Tech as well. Microsoft will soon be facing a landscape of much more government oversight, the end of AI’s free ride, and maybe reduced revenue.

The election wasn’t all bad news for the company, though. There’s some good news as well. I’ll be writing about that in my next column.

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