Wall Street endured a massive $2.5 trillion liquidation on Thursday as artifficial intelligence-related stocks plummeted following Democratic victories in the U.S. midterm elections. The selloff saw the Nasdaq composite drop nearly 5%, pushing the index into correction territory as investors reacted to potential shifts in federal oversight.
Democratic victories spark fears over data center construction
The nationwide success of the Democratic Party in the midterm elections has introduced significant uncertainty regarding the physical infrastructure of the AI boom. According to the report, investors are concerned that new leadership in Congress could mandate pauses on the construction of AI data centers, which are essential for processing advanced models.
Democratic leaders have signaled a move toward stricter federal oversight, including mandatory safety testing for advanced AI models. This regulatory pivot, expected to take full effect when the party takes control of Congress in January 2027, threatens to reduce the immediate demand for electricity, AI chips, and the specialized infrastructure products that have recently driven economic growth.
Nvidia and the $2.5 trillion semiconductor selloff
Nvidia led the sector-wide retreat, with its shares falling 7.5% and acting as the primary drag on the S&P 500. The semiconductor industry faced a brutal day, with Advanced Micro Devices (AMD) losing 14.6% of its value and Qualcomm sliding 14% as panic spread through the tech sector.
The broader semiconductor exchange-traded fund (SOXX) plummeted 11%, marking its most significant intraday loss since the pandemic began in March 2020. As the source indicates, this decline was not limited to chipmakers; CoreWeave saw a 12.1% drop, and GE Vernova, a provider of critical power solutions for data centers, sank 6.1% as the markeet priced in a potential slowdown in infrastructure expansion.
Elon Musk’s $152 billion election-related paper loss
Elon Musk faced substantial financial headwinds following his significant support for Republican candidates during the midterm elections. Tesla shares dropped nearly 12% on Thursday, contributing to a nearly 15% decline for the automaker over a two-day period.
The volatility extended beyond Tesla, as Musk's SpaceX shares also declined by more than 12% following the election results. When combining these movements, the billionaire entrepreneur has seen a total paper loss of approximately $152 billion since the voting concluded, including a $39.4 billion hit to his Tesla-related wealth.
A $1.5 trillion margin debt house of cards
The market's sudden collapse was exacerbated by record-high levels of investor speculation and leverage. Margin debt reached a historic $1.5 trillion in June, representing a 50% increase compared to the previous year, leaving the market highly sensitive to negative news.
U.S. households are currently holding 48% of their financial assets in stocks, a ratio that significantly exceeds the 38.7% peak seen during the dot-com bubble. Former Goldman Sachs analyst Nic Puckrin suggested that the election results acted as a spark for a "house of cards" that was already destabilized by disappointing earnings in the technology sector.
Will the 2027 Democratic Congress stall AI growth?
While the immediate market reaction was severe, several critical questions remain regarding the long-term trajectory of the AI sector. It is currently unclear how much the proposed mandatory safety testing and federal oversight will actually delay the deployment of new models or the construction of necessary data centers.
Furthermore, the impact of international monetary policy remains an unverified variable; while the Bank of England raised interest rates to combat inflation, the extent to which the Iran war and Middle East conflict will influence global liquidity and U.S. tech valuations is still being determined.. Investors are also left wondering if the strength of outliers like AppLovin, which surged 28%, can provide a new floor for the broader S&P 500.
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