Pedestrians outside the Nasdaq MarketSite in New York, on Friday, October 16. The Nasdaq had its worst day since April 2025, when President Donald Trump unveiled sweeping global tariffs.
Global markets experienced a significant downturn after a pressure intensified on Thursday, leading to a broader market decline.
Central to the sell-off is the Democratic gubernatorial victory in Texas, a state that has been instrumental in accelerating AI progress through massive <a fear gauge" used to measure volatility expectations, jumped roughly 70%—its largest single-day increase in nearly two years—reaching its highest level in seven months. The sell-off was broad, with all 11 sectors of the S&P 500 finishing the day in the red.
Anxiety regarding AI stocks and the potential for a slower pace of data center construction boosted government bonds. The 10-year Treasury yield dropped to 4.84%, hitting a two-month low.
Keith Lerner, chief investment officer at Truist Advisory Services, viewed this week’s volatility as more of a knee-jerk reaction rather than a definitive indicator of how stocks, particularly in the tech sector, might perform under Democratic control of Congress.
Investors have largely struggled to determine whether reining in the AI buildout might create unique investment opportunities or lead to further complications.
On Wednesday, shares of Amazon, Meta, and Google—often referred to as hyperscalers in the AI buildout—surged on the belief that new restrictions would free up cash that would otherwise be spent on data centers, thereby boosting profitability. By Thursday, however, investors turned against those trades, likely fearing that the new restrictions would ultimately be a net negative.
While data centers are increasingly vital for powering everything from AI to the broader internet, the rapid pace of construction has sparked questions about whether companies are overbuilding—potentially committing to more computing capacity than demand will eventually justify.
Ed Yardeni, president of Yardeni Research, sees a potential silver lining in the pullback of the AI trade and the obstacles facing data center construction.
“We want a slowdown in the AI buildout. It was too frenzied and speculative,” Yardeni told CNN. “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.”
At the same time, the tech sell-off represents a rare instance where the sector is significantly underperforming the S&P 500. At a certain point, this type of discount could become increasingly appealing to investors, prompting them to purchase shares, said Truist’s Lerner.
“In our view, the risk-reward is improving for longer-term investors,” he said.
The tech sector has experienced a volatile year and is expected to continue that trend with the upcoming IPO of Anthropic and the anticipated IPO of OpenAI next year.
The Nasdaq, which is heavily weighted toward tech companies, entered correction territory in March, rallied to record highs in early June, stumbled and nearly fell into correction in late July, then reclaimed record highs in September and October—before sliding into correction territory once again on Thursday.
In total, the Nasdaq and S&P 500 have declined roughly 12% and 6%, respectively, since their peaks on October 6. The Dow is down approximately 5% from its August 5 peak.
