Nasdaq sheds $2.5t as Democratic midterm wins fuel AI fears
Photo: REUTERS
The tech-heavy Nasdaq recorded its sharpest single-day plunge since “Liberation Day” in April 2025, erasing $2.5 trillion in market capitalization as fears of heightened scrutiny over artificial intelligence (AI) - specifically targeting data center construction - surged following decisive victories by Democrats in the US midterm elections.
Nasdaq Composite plummeted 5.5 percent as investors grew anxious that the Democratic Party’s broad midterm triumph might halt the expansion of AI infrastructure and trigger a financial reckoning for smaller enterprises whose fundraising capacity had already suffered under elevated interest rates and restrictive financial conditions.
The downturn marked the second consecutive day of sell-offs across AI-related equities and registered as the fifth drop exceeding 500 points for the Nasdaq Composite since mid-October, highlighting how intense scrutiny has gripped the previously booming AI trade over recent weeks.
Entering official correction territory, the Nasdaq Composite has now shed nearly 12 percent from its record peak set on 6 October, crossing the standard threshold that defines a correction as a 10 percent decline from a recent high.
Analyzing the market reaction, Michael O’Rourke, chief market strategist at JonesTrading in Stamford, Connecticut, said, “The big election outcome was, especially with the Democrats winning a lot of the governorships, that the slowdown of the data center buildout is the real key theme that’s going to stick.”
Numerous market analysts warned that the magnitude of these losses signals imminent continued selling, likely commencing during Friday’s Asian trading sessions. Although Japan’s Nikkei and South Korea’s Kospi have advanced more than 20 percent this year, both indexes suffered notable drops following Wednesday’s slump in data center shares.
Moreover, industry observers questioned whether the widespread market rout could disrupt the expected fall timing of Anthropic’s landmark initial public offering (IPO), as any delay risks worsening overall investor sentiment.
Market experts and portfolio managers emphasized that pullbacks in formerly high-flying sectors like semiconductors and AI infrastructure were not surprising, given the massive prior gains in many equities alongside ongoing financing anxieties surrounding neocloud providers such as Nebius and CoreWeave since US interest rates rose in late summer.
On Thursday, semiconductor and neocloud stocks endured the steepest losses as market participants reacted to possibilities that data center construction projects worth billions of dollars could experience delays.
Philadelphia SE Semiconductor index plunged 12 percent to its lowest level in over six months, while Nvidia fell 9 percent and Advanced Micro Devices (AMD) plummeted 17 percent. Meanwhile, Wall Street’s volatility benchmark, the VIX index measuring expected price fluctuations, posted its largest surge since December 2024.
Major hyperscalers, which previously weathered Wednesday’s AI sell-off, also yielded to downward pressure. Both Amazon and Alphabet fell 2.2 percent.
Nasdaq 100 index, which tracks the largest non-financial companies within the broader index, dropped 6.4 percent, wiping out $2.5 trillion in total equity value. The widespread selling indicates that investors are increasingly pricing in mounting community resistance to data center expansion, with analysts asserting that financial markets have not fully calculated the localized costs imposed on American communities.
Highlighting these growing community friction points, Bruce Zaro, managing director at Granite Wealth Management in Plymouth, Massachusetts, added, “There’s going to be a lot of pushback about those data centers being geographically located in someone’s backyard, straining the power grid, straining the water systems. Although there are a number of data centers already approved, there are still a lot to be permitted. There’s going to be a difficult road to get those permitted forthcoming.”
According to estimates from UBS analysts, potential construction halts could jeopardize around 30 percent of projected US data center capacity additions scheduled for 2028, threatening a sector dependent on swift infrastructure growth.
These political uncertainties are shaking an AI sector already operating on fragile ground due to lingering skepticism over the return on investment for massive capital expenditures in the technology.
Neocloud operator CoreWeave, which functions as a bellwether for market anxiety regarding heavy AI capital expenditures and debt accumulation, tumbled 10 percent.
Data from S&P Global Market Intelligence showed that CoreWeave’s 5-year credit default swap (CDS) spreads - a key metric for default risk - expanded to a record 1,267.9 basis points. Similarly, Intel’s 5-year CDS spreads touched a record high of 149.7 basis points. Peer neocloud firm Nebius sank 15 percent, leaving shares of both companies down by half or more since the Nasdaq Composite hit its record peak on October 6.
Reflecting on the shifting market dynamics, Ted Parkhill, founder and CEO of Incline Investment Management, said, “The market’s moving from the promise of AI to the price of AI. 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 battered other data center operators, with Applied Digital, Cipher Digital, and IREN each falling more than 14 percent. The downward momentum extended to utility companies and equipment suppliers tied to the infrastructure expansion, as GE Vernova dropped 7.4 percent and Constellation Energy slid 2.5 percent.
Moreover, Microsoft declined 3.6 percent amid reports from Bloomberg News indicating that the technology giant is enforcing stricter oversight on select data center projects involving Nebius, IREN, and Nscale.
Source: Reuters (adapted)
