AI crackdown fears after midterms wipe $2 trillion off tech stocks
The Nasdaq fell more than 5% on Thursday as investors weighed a Democratic Congress and state leaders vowing to push back on AI and data centers.
At a glance
- Fears of AI regulation after Democratic midterm wins sent the Nasdaq down more than 5% on Thursday.
- The sell-off wiped out more than $2 trillion in market value and reversed Wednesday's broad gains.
- Voters opposed to AI data centers backed Democrats, and Gina Hinojosa won the Texas governor's race.
Investors erased more than $2 trillion in market value on Thursday, sending the tech-heavy Nasdaq down more than 5% on fears that a Democratic Congress and newly elected state leaders will crack down on artificial intelligence and the data centers it depends on. The sell-off came two days after Democrats won decisively in the national midterm elections and in state races across the country.
The Dow Jones Industrial Average and the S&P 500 also fell.
The losses were a sharp reversal from Wednesday, when shares rose broadly as investors were relieved that the midterms ended without leaving control of Congress undecided.
A signal from voters
Thursday's about-face reflected a message investors read in the results: many voters turned against AI data centers, which they worry will consume large amounts of water and energy. Those voters backed Democrats who have promised to push back on the spread of such projects.
Yet companies including Meta and Alphabet, Google's parent, need to keep building data centers to continue developing the technology.
The Nasdaq's decline adds to what was already a difficult year for technology shares, as investors began questioning whether the huge sums companies have poured into AI will pay off soon.
"There is some concern regarding AI regulation, and fears that there could be far more regulations coming to AI technology, as well as a pushback on the buildout of data centers across the country," said David Busch, chief investment officer of Trajan Wealth.
Musk and Texas
AI-related and AI-dependent stocks were among Thursday's biggest decliners, with Tesla and SpaceX, both controlled by billionaire Elon Musk, falling particularly sharply. Musk spent hundreds of millions of dollars on an unsuccessful effort to elect more Republicans, and investors fear he and his companies could face Democratic scrutiny once the new Congress is seated in January.
Congress is not the only source of pressure. Democrats who pledged to slow AI development also won at the state level, most prominently Gina Hinojosa, who won the Texas governor's race in stunning fashion.
What comes next
It is unclear whether the AI stock rout will continue or spread beyond tech shares. AI has become a major driver of the U.S. economy, which posted solid annual growth of 3.4% in the July-September quarter.
Sophisticated Wall Street investors are not the only ones exposed. Average Americans hold large stakes in AI companies through retirement accounts such as 401(k)s and pension funds, leaving them vulnerable too if the sell-off drags on.
Source: NPR News.
Questions and answers
- Why did tech stocks fall after the midterm elections?
- Investors feared an incoming Democratic Congress and newly elected state leaders would crack down on AI and push back on data center construction. The Nasdaq fell more than 5%.
- How much market value was wiped out by the AI stock sell-off?
- More than $2 trillion was erased on Thursday, with the Nasdaq down over 5% and the Dow Jones and S&P 500 also sinking. It is unclear whether the rout will continue.
- Which stocks fell the most?
- AI-related and AI-dependent stocks were among the biggest decliners, with Tesla and SpaceX, both controlled by Elon Musk, falling particularly sharply, according to the report.
