AI stocks tumble as Democrats win US midterms, hitting Nasdaq 100

Shares of AI-focused companies fell sharply after the United States midterm elections gave Democrats majorities in both chambers, prompting investors to anticipate tougher regulation of data centres. The Nasdaq 100 slipped more than 6%, erasing about $US2.3 trillion ($3.3 trillion) in market value, according to market data.

Australian Financial Review economics editor John Kehoe said the index had dropped over 5% overnight and about 10% over the past few days, noting investor worries that a Democratic Congress could impose stricter rules on AI development and data-centre construction.

“There’s concerns among investors that Democrats over there in America are going to crack down on AI, regulate it harder, make it more difficult to build data centres,” Kehoe told Today.

Elon Musk-linked firms were among the hardest hit. eToro analyst Josh Gilbert pointed to losses at Tesla and SpaceX, both based in Texas, where Democrats won the governor’s race and a Senate seat.

“Tesla and SpaceX are both headquartered in Texas, where Democrats have just won the governor’s race and a Senate seat, and both stocks fell on Wednesday, even as the broader market rose and rival EV makers gained,” Gilbert said.

Gilbert added that while the AI rally would not disappear instantly, higher regulatory costs could delay data-centre projects, benefitting companies that already have facilities and approvals.

Chipmakers and data-centre service providers also saw steep declines: Nvidia fell 7%, a broader chip index dropped 10%, and firms such as CoreWeave and Nebius lost double-digit percentages. Qualcomm’s shares slid 11.5% after missing earnings estimates, and the market-volatility gauge VIX jumped 50% to a seven-month high.

Truist Advisory Services chief investment officer Keith Lerner described the moves as a knee-jerk reaction rather than a clear signal of long-term performance under Democratic control.

Some investors briefly bought shares of large cloud providers like Amazon, Meta and Google, betting that new restrictions might free cash for profitability, but the rally faded as concerns grew.

Yardeni Research president Ed Yardeni told CNN that a slowdown in the AI build-out could be beneficial, saying, “We want a slowdown in the AI buildout. It was too frenzied and speculative. Now we are letting air come out of the AI bubble. It’s better to let air come out of the AI bubble than let it burst.”

Lerner added that the current sell-off creates a potential buying opportunity for long-term investors, noting an improving risk-reward balance as the sector underperforms the broader S&P 500.