The stock market crashed Thursday on fears of a shift in political control of Congress following the United States. midterm elections could slow the construction of data centers that power artificial intelligence services.
Stocks fell across the board, but tech companies active in the AI sector were hit particularly hard. The Nasdaq Composite Index fell 1,422 points, or 5.5%, to close at 24,315. The drop means the tech-heavy index is now in a “correction,” down more than 10% from its most recent all-time high, set in October.
The broader S&P 500 index lost 335 points, or 4.4 percent, to end at 7,354, while the blue-chip index, the Dow Jones Industrial Average, plunged 1,833 points, or 3.4 percent.
The decline continued in European and Asian markets on Friday, but US stocks are expected to perform mixed. Dow futures were down 0.8% at 51,192.00. S&P 500 futures gained ground, adding nearly 0.3% to 7,402.50.
Market watchers believe Democrats’ blowout election victories this week could strengthen data center opponents and slow down deployment facilities, which sparked widespread public opposition. Investors are reacting to growing AI risks, according to Wall Street analyst Adam Crisafulli of Vital Knowledge.
The rout was violent enough to potentially delay the much-anticipated IPO by Anthropica bellwether for the entire AI sector, Crisafulli told investors in a research note. Before the turbulence in the financial markets, the IPO was to take place this month and raise up to $100 billion.
The sharp decline also marks a sharp reversal from Wednesday, when the Dow Jones reported its biggest gain of the year. Other indexes also jumped after election results eased uncertainty over who will control Washington.
“Visible cracks”
“Even as the market rallied on Wednesday after the midterm elections, there were visible cracks in the AI ecosystem, and they widened on Thursday due to investor concerns about potentially slower data center development with Democrats running Congress,” Chris Larkin, managing director of trading and investments for E*TRADE at Morgan Stanley, said in an email.
A slowdown in data center construction could deal a blow to AI companies, which are investing billions in construction and banking on widespread adoption of the technology.
“The trigger for these measures appears to be fears that 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 at investment adviser Capital Economics, said in a report. “The immediate risk is that restrictions on data center construction will slow the pace of AI infrastructure development. This is an obvious obstacle for companies directly involved in this development, whose prospects depend on rapid and continued investment growth.
Investors fear the huge investment in AI could create a stock market bubble, which happens when sky-high valuations become detached from companies’ underlying fundamentals.
“It remains to be seen whether the midterm shock will prove to be the catalyst that derails the AI stock boom, but it reinforces our sense that the boom is in its final innings,” Maher said.
Chip stocks and other AI-exposed stocks took a particularly beating Thursday. Shares of Nvidia, whose advanced chips are a key component in developing ever more powerful AI models, fell 9.2% in one day after falling 3.2%. Advanced Micro Devices fell 17.3%. CoreWeave, a company that rents access to AI chips to its customers via the cloud, fell 9.8%.
Trump Media & Technology Group, owner of the Truth Social platform, also continued to struggle, with its shares falling 10.5% after falling nearly 25% on Wednesday. The stock, which now hovers around $4, is at an all-time low since the company its shares are listed on the stock exchange in March 2024.
In other financial markets, the initial reaction to the election results has muted somewhat. 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. There is still uncertainty about what will happen in the war with Iran and when the global energy sector can return to normal.
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