Nasdaq Falls 5.5% in Worst Day Since April 2025 as AI Regulation Fears Hit Chip Stocks

The preliminary close left the tech-heavy index more than 10% below its October 6 record, which confirms a correction. The S&P 500 lost 4.32% to 7,353.65 and the Dow Jones Industrial Average dropped 3.45% to 51,513.43. Some reports put the Nasdaq's loss at about 5.5% as final figures came in.

The reversal was abrupt. On Wednesday the S&P 500 posted its biggest percentage gain in three months, as a clear election result removed one source of political uncertainty. By Thursday investors were weighing what Democratic control of Congress, and Democratic wins in states where opposition to new data centres has been growing, could mean for the AI construction that has carried much of the market's rise.

The Ballot Box Effect

The pressure came from local votes as well as national ones. Of 45 data centre ballot initiatives around the country, 39 measures to restrict development passed and only one, in North Dakota, went the other way, according to figures from Data Centers on the Ballot cited by Al Jazeera. UBS analysts estimated that construction pauses could put roughly 30% of planned US data centre capacity additions in 2028 at risk, Reuters reported.

Melissa Brown, global head of investment decision research at SimCorp, told Reuters that investors were recognising that some newly elected lawmakers and governors "are looking to slow the pace" of AI infrastructure development. She did not expect the build-out to be stopped, but said "any slowdown would raise concerns" because AI growth has relied so heavily on it.

Jed Ellerbroek, a portfolio manager at Argent Capital Management, told Reuters: "This feels like the capitulation phase for the data center capex beneficiary stocks, especially the semiconductors." He added that "the magnitude of the moves is outsized."

Michael Monaghan, portfolio manager of the Founders 100 ETF, told Al Jazeera that analysts were adjusting their expectations for political resistance to AI infrastructure, particularly at state and local level. "We're seeing that concern reflected in the selloff across semiconductors and hyperscalers," he said.

Chips, Neoclouds and Power

By midday Nvidia was down 8.2%, Micron nearly 14%, Intel 6.8% and AI server maker Dell nearly 13%, according to Al Jazeera. Neocloud operators fared worse, with CoreWeave down more than 12% and Nebius Group down nearly 17%. Bloomberg's closing coverage put Nvidia's loss for the day at 9% and the value erased from AI-linked stocks at $2.3 trillion.

The selling spread to data centre operators IREN and Applied Digital and to power suppliers GE Vernova and Constellation Energy. Meta, Amazon and Alphabet gave back Wednesday's gains. Qualcomm fell after missing Wall Street estimates for fourth-quarter smartphone chip sales. Tesla and SpaceX, whose chief executive Elon Musk spent heavily backing Republican candidates, also dropped sharply.

Interest rates added to the strain. Federal Reserve officials Beth Hammack and Thomas Barkin hinted at further rate increases, and traders expect another hike next month after one in September. Gold rose just over 1% to $4,115 an ounce by midday.

The selling was not limited to Wall Street. Technology shares pulled Europe's benchmark index lower, and Ipek Ozkardeskaya, senior analyst at Swissquote Bank, described money rotating out of technology and out of US markets after what she called a very aggressive Democratic sweep.

Investors now turn to the October US nonfarm payrolls report, due on Friday, which will shape expectations for the Fed's next move.