US tech stocks plunge as midterm results spark fears of AI industry regulation

Major US stock indices cratered on Thursday, with the Nasdaq Composite falling 5.5% as investors reacted to Democratic midterm victories that could lead to stricter oversight of the artificial intelligence sector.

Wall Street experienced a widespread sell-off as the Nasdaq Composite tumbled 1,422 points to close at 24,315, entering correction territory by falling more than 10% from its October record high. According to CBS News and the BBC, the tech-heavy index lost between $2tn and $2.5tn in market capitalization. The S&P 500 dropped 4.4% to end at 7,354, while the Dow Jones Industrial Average plunged 1,833 points, or 3.4%, erasing gains made only a day earlier.

The market rout was driven by concerns that Democratic control of Congress and key governorships will slow the development of data centers essential for AI. The BBC reported that several Democratic campaigns ran on platforms of slowing AI growth, including Texas governor-elect Gina Hinojosa, who pledged a moratorium on new data center construction. The Guardian noted that voters also rejected data center expansions in various local ballots across the country.

Chipmakers were hit particularly hard by the shift in sentiment. SanDisk saw the steepest decline at 22%, while AMD and Micron both dropped more than 17%. Nvidia shares fell 9.2% according to The Guardian, while the BBC reported the slide as more than 9%. Other major firms also suffered; Elon Musk's Tesla and SpaceX saw shares fall nearly 11% and 8% respectively. Analysts told CBS News the volatility could even delay the anticipated $100 billion initial public offering of AI firm Anthropic.

Market volatility spiked during the session, with the VIX fear gauge jumping 61% to its highest level since the early weeks of the Iran war, The Guardian reported. Reuters noted the jump was the largest since Liberation Day. While analyst Neil Wilson of Saxo UK described the event as a complete capitulation of tech stocks, Joe Maher of Capital Economics stated the immediate risk is that new restrictions will slow the pace of AI infrastructure development.

Background

The sharp downturn followed a rally on Wednesday after election results initially eased uncertainty about Washington's leadership. Investors are now weighing political shifts against the billions of dollars already poured into AI buildouts.