Nasdaq hits correction territory as AI optimism fades post-midterm

Wall Street suffered a major setback as technology stocks plunged yesterday after Democrats’ sweeping midterm victories on Wednesday.

Investors worried that the election results could lead to tighter scrutiny of artificial intelligence projects and slow the construction of expensive data centers.

The Nasdaq Composite dropped 5.5%, marking its steepest single-day decline since April 2025. The Nasdaq 100 also fell 6.4%, wiping out approximately $2.5 trillion in market value. The broader Nasdaq has now lost nearly 12% from its October 6 record, officially entering correction territory.

Investors' concerns about AI deepened amid the prospect of tougher regulations under a Democratic Congress and potential construction moratoriums in major data center markets, including Texas and Georgia.

AI stocks lead the decline
Chipmakers and data center companies suffered the heaviest losses. Nvidia shares fell 9%, while AMD plunged 17%, and SanDisk closed down 22%

The Philadelphia Semiconductor Index dropped 12%, reaching its lowest level in more than six months. The rout extended to much of the software sector, including companies previously buoyed by AI optimism, such as Palantir and CrowdStrike, both of which saw their shares tumble nearly 10%.

AI infrastructure companies Nebius and CoreWeave also fell sharply.

Investors fear that political opposition, rising construction costs and pressure on electricity and water supplies could delay data center projects. Analysts estimate that nearly 30% of planned US data center capacity additions for 2028 could face construction delays.

The VIX, a key gauge of stock market volatility, surged 69% yesterday.

Investors reassess AI spending
The sell-off also reflects growing doubts about whether massive AI investments will generate enough profit. Higher interest rates and tighter financing conditions have added pressure on smaller companies that depend on borrowing to expand.

As investors shift their focus from AI’s promise to its actual costs, technology stocks could face further volatility.

Meanwhile, gold rose more than 0.6%, US Treasury bonds advanced, and the Swiss franc strengthened to its highest level against the dollar in nearly two months.