Dow sheds more than 1,800 points as midterm results spur investor exodus from tech and AI
The stock market tanked on Thursday amid concerns that a shift in congressional political control following the U.S. midterm elections could slow the construction of data centers that power artificial intelligence services.
Stocks sank across the board, but technology companies with a hand in the AI sector were hit especially hard. The Nasdaq Composite Index tumbled 1,422 points, or 5.5%, to close at 24,315. The drop means the tech-heavy index is now in a "correction," or down more than 10% from its most recent all-time high, set in October.
The broader S&P 500 dropped 335 points, or 4.4%, to end at 7,354, while the blue-chip Dow Jones Industrial Average plunged 1,833 points, or 3.4%.
Market watchers think the Democrats' sweeping electoral victories this week could bolster opponents of data centers and slow the rollout of the facilities, which have spurred widespread public opposition. Investors are reacting to the growing "headline" risks around AI, according to Wall Street analyst Adam Crisafulli of Vital Knowledge.
The rout was violent enough to potentially delay the highly anticipated initial public offering by Anthropic, a bellwether for the entire AI business, Crisafulli told investors in a research note. Before the turmoil in financial markets, the IPO had been expected to take place this month and to raise as much as $100 billion.
The sharp drop also marks a sharp reversal from Wednesday, when the Dow posted its biggest gain of the year. Other indexes also surged after the election results eased uncertainty about who will control Washington.
"Visible cracks"
"Even though the market rallied Wednesday after the midterm elections, there were visible cracks in the AI ecosystem, and they widened on Thursday amid investor concerns about a potentially slower data center buildout with Democrats in charge of Congress," Chris Larkin, a managing director of trading and investing for E*TRADE from Morgan Stanley, said in an email.
A slowdown in erecting data centers could deal a major blow to AI companies, which are pouring billions into the buildout and banking on widespread adoption of the technology.
"The trigger for these moves appears to be the concern that the Democrats, both in Congress and at the state level, will seek to regulate the AI industry and restrict data center development," Joe Maher, markets economist with investment adviser Capital Economics, said in a report. "The immediate risk is that restrictions on data center construction slow the pace of the AI infrastructure buildout. That is an obvious headwind for the firms directly involved in that buildout, whose prospects depend on continued rapid capex growth.
Investors worry that the enormous investment in AI is creating a stock market bubble, which happens when sky-high valuations become detached from companies' underlying fundamentals.
"Whether the midterms shock turns out to be the catalyst that derails the AI equity boom remains to be seen, but it strengthens our sense that the boom is in its final innings," Maher said.
Chip and other AI-exposed stocks took a particular beating on Thursday. Shares of Nvidia, whose advanced chips are a key component in developing ever more powerful AI models, fell 9.2% a day after dropping 3.2%. Advanced Micro Devices tumbled 17.3%. CoreWeave, a company that rents access to AI chips to customers over the cloud, fell 9.8%.
Trump Media & Technology Group, which owns the Truth Social platform, also continued to flail, with its shares falling 10.5% after dropping nearly 25% on Wednesday. The stock, which now hovers around $4, is at an all-time low since the company publicly listed its shares in March of 2024.
In other financial markets, the initial reaction to the election results faded a bit. The price of a barrel of Brent crude oil rose 2.6% to $97.11 and recovered much of its nearly 9% drop from the day before. Uncertainty still reigns about what will happen in the war with Iran and when the global energy industry can return to normal.
