Texas just hit the pause button on its data center gold rush, and the companies that already secured their spot at the table are quietly celebrating.

Governor Greg Abbott directed the Public Utility Commission of Texas (PUCT) and ERCOT to conduct a comprehensive audit of every data center project sitting in the state’s interconnection queue. The move effectively freezes new projects until regulators can verify power demand, water usage, ownership structures, incentive claims, and regulatory compliance for each one.

A queue that got way out of hand

Texas’s interconnection queue currently exceeds 474 GW of requested capacity. To put that in perspective, the entire US electric grid has roughly 1,300 GW of installed generating capacity. Texas alone is fielding requests equivalent to more than a third of the nation’s total power supply.

Approximately 90% of that queue comes from data center projects. Abbott’s directive, issued on August 3, specifically targets non-viable and speculative projects that threaten grid reliability. Projects that fail to meet PUCT and ERCOT specifications will be denied grid access entirely.

A prior directive from June mandated that data centers cover their own interconnection infrastructure costs and explore on-site energy generation.

Why existing operators win

Bernstein analysts have assigned “outperform” ratings to both Iris Energy (IREN) and Riot Platforms, with price targets of $100 and $25, respectively.

Both companies already have grid-connected capacity and established operations in Texas. The median waiting period for a 1 GW interconnection nationally sits at around 50 months. Add a comprehensive state audit on top of that timeline, and new competitors are looking at potentially half a decade or more before they can flip the switch.

The AI-crypto power convergence

Texas became the epicenter of this competition due to the state’s deregulated energy market, abundant natural gas supply, and business-friendly regulatory environment. The sheer volume of applications eventually overwhelmed the system’s ability to process them responsibly.

Bernstein’s earlier research has highlighted how power-constrained environments create competitive moats for established operators. Companies like IREN and Riot have been diversifying their revenue streams by offering data center capacity to AI clients, a strategy that becomes more attractive when new supply is constrained by regulatory review.

What this means for investors

Texas isn’t banning data centers. It’s imposing quality control on a queue that became bloated with speculative applications, meaning the regulatory action is selectively punitive, hurting paper projects while rewarding real ones.

For investors evaluating IREN and Riot Platforms, the key variable to watch is how long this audit takes and how many projects get culled from the queue. There’s risk in this thesis: ERCOT’s history of weather-related failures, most notably the February 2021 winter storm, means that even connected operators face operational risk from the grid itself.