Nasdaq slumps 5.5% in worst day in 18 months as AI regulation fears hit Wall Street

The Nasdaq composite fell 5.5% on Thursday, its worst day in 18 months, as investors anticipated tougher regulation of the artificial intelligence industry following the US midterm election results.

The tech-heavy index dropped into "correction territory" – more than 10% below its recent record high – with more than $2tn shaved off its value by the end of trading. It was the biggest one-day fall since Donald Trump announced his "liberation day" tariffs on US trading partners in April 2025.

Chip stocks lead the sell-off

Chipmakers bore the brunt of the losses. Memory maker SanDisk tumbled 22% and hard drive maker Western Digital fell 17%. Nvidia, the chipmaker at the heart of the AI boom, was the top faller on the Dow Jones industrial average, down 9.2%, followed by Goldman Sachs, which fell 3.7%.

Wall Street's "fear index", the VIX, jumped 61% to its highest level since the early weeks of the Iran war, in a sign of rising market volatility.

The Dow Jones industrial average of 30 large US companies closed down more than 1,800 points, or 3.4%, at 51,868. The S&P 500 was down 4.3%. An early rally in Europe fizzled out by late trading, with Britain's FTSE 100 closing down 46 points, or 0.4%, at 10,782.66.

Datacentre expansion in focus

Analysts pointed to expectations that Democratic governors will clamp down on the rollout of new datacentres after the party won a series of gubernatorial races this week. US voters also rejected datacentres in a series of local ballots across the country.

Neil Wilson, investor strategist at Saxo UK, said a "complete capitulation-level event" was playing out in tech stocks on Thursday. "The fear is a total momentum unwind as Democrats pace the frontier and kibosh datacentre buildout ... this looks totally overdone but the nature of 'sell everything' in this market means we need to look for some stability first," he said.

Tech analyst Dan Ives warned that the midterm results were a clear sign the pace of datacentre buildout will start to slow down. "There is no way to sugarcoat that Democrats taking control, especially over the Senate, will create some major hurdles for AI and tech legislation in the Beltway over the next two years," he said.

Ted Parkhill, founder and CEO of Incline Investment Management, said: "The market's moving from the promise of AI to the price of AI." He added: "There's no question that AI is going to be transformative for the world in the long run. But that doesn't mean every AI-related stock is currently priced appropriately. There's going to be a lot of turmoil."

The sell-off is a sharp reverse of Wednesday's rally, when Wall Street stocks had their biggest daily gain in months as investors anticipated that the Democratic party's success in the midterms could restrain the White House. That rally prompted Donald Trump to boast on Truth Social about the record highs reached during his second term: "Stock Market just hit another Record High – 91 Days in just a short period of time — Less than two years. Your 401(k)s are through the roof. Record Setting All! President DONALD J. TRUMP."

Source: The Guardian Technology.