Nearly $2tn has been wiped from the Nasdaq’s market value as concerns regarding potential restrictions on artificial intelligence datacenters ripple across global exchanges.
The Nasdaq index suffered its most significant single-day decline in 19 months, dropping 5.5% on Thursday amid mounting indications that the AI sector will face more stringent regulation following the midterm stock market and spread to other global exchanges as investors braced for increased scrutiny of plans to expand datacenters.
Chip manufacturers led the decline, with SanDisk shares plummeting 22% and Western Digital falling 17%. Wall Street’s “fear index,” the VIX, surged 61% to its highest level since the early stages of the Iran war, signaling heightened market volatility.
The downward trend persisted in Asia on Friday, with Japan’s Nikkei 225 index sliding 6% and South Korea’s Kospi index dropping more than 8% during early trading.
Analysts pointed to expectations that Democratic governors will restrict the development of new datacenters following the party’s success in a series of gubernatorial races this week. US voters also signaled opposition to datacenters in various local ballots across the country.
Neil Wilson, investor strategist at Saxo UK, described Thursday’s tech stock performance as a “complete capitulation-level event.”
“The fear is a total momentum unwind as Democrats pace the frontier and kibosh datacentre buildout … this looks totally overdone but the nature of ‘sell everything’ in this market means we need to look for some stability first,” Wilson said.
The Dow Jones Industrial Average (DJIA), representing 30 major US corporations, closed down more than 1,800 points, a 3.4% decline, ending at 51,868 points. The S&P 500 fell 4.3%.
Nvidia, the chipmaker central to the AI boom, was the biggest loser on the DJIA, dropping 9.2%, followed by Goldman Sachs, which declined 3.7%.
An early rally in European markets evaporated by the end of the session, with Britain’s FTSE 100 closing down 46 points, or 0.4%, at 10782.66.
This sell-off marks a dramatic reversal from Wednesday’s gains, when Wall Street stocks recorded their largest daily increase in months as investors anticipated that the Democratic party’s midterm election success might constrain the White House.
That rally led Donald Trump to once again tout the record-breaking stock market highs achieved during his second term. The president wrote on Truth Social: “Stock Market just hit another Record High – 91 Days in just a short period of time — Less than two years. Your 401(k)s are through the roof. Record Setting All! President DONALD J. TRUMP.”
Tech analyst Dan Ives has warned that the midterm results clearly indicate that the pace of datacenter construction is set to decelerate.
“There is no way to sugarcoat that Democrats taking control, especially over the Senate, will create some major hurdles for AI and tech legislation in the Beltway over the next two years,” Ives said.
“The market’s moving from the promise of AI to the price of AI,” said Ted Parkhill, founder and CEO of Incline Investment Management.
“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.”
