AI Stocks Lead Market Plunge Following Election Results, US Markets Decline

United States markets experienced a significant downturn on Thursday, primarily driven by a sharp selloff in the artificial intelligence (AI) sector. Losses in US chip and data centre-related stocks exerted downward pressure on the technology sector in the wake of the Democratic Party's sweeping victories in the midterm elections. The Nasdaq, a technology-heavy index, saw a decline of 4.8 percent in midday trading. The S&P 500 fell by 3.6 percent, and the Dow Jones Industrial Average slid 2.8 percent.

This downturn followed a market rally on Wednesday, which was attributed to the election results signaling potential limitations on policy disruptions from a Congress often at odds with the White House. Market sentiment was further bolstered by remarks from US President Donald Trump indicating his acceptance of the election outcomes.

Artificial intelligence (AI) stocks, which have been instrumental in the market's recent growth, spearheaded the plunge within the tech sector that dragged down the broader markets on Thursday. Data from the election revealed that out of 45 data centre ballot initiatives nationwide, voters approved restrictions on the majority of them. Specifically, 39 ballot measures aimed at restricting AI were successful, with only one, in North Dakota, voting against such restrictions.

Analysts at UBS have estimated that these potential construction pauses could jeopardize approximately 30 percent of planned US data centre capacity additions projected for 2028, according to Reuters. Michael Monaghan, portfolio manager of Founders 100 ETF, commented to Al Jazeera, "Yesterday, markets rallied on certainty as election results removed a layer of uncertainty. Today, portfolio managers and analysts are digging into the implications and adjusting expectations for potential political resistance to AI infrastructure, particularly at the state and local levels." He added, "We’re seeing that concern reflected in the selloff across semiconductors and hyperscalers."

Consequently, data centre operators and neocloud companies experienced significant declines. CoreWeave was down over 12 percent, and Nebius Group saw a nearly 17 percent drop. Semiconductor stocks, including AI market leader Nvidia, fell by 8.2 percent. Micron experienced a decline of nearly 14 percent, and Intel dropped by 6.8 percent in midday trading. AI server manufacturer Dell also saw a decrease of nearly 13 percent.

Other major technology companies were also trading in negative territory. Amazon fell by 2 percent, while Meta, the parent company of Facebook and Instagram, was down 3.8 percent. SpaceX shares plummeted by 9.5 percent, and Tesla, also owned by Elon Musk, fell over 11 percent. This decline in Tesla and SpaceX shares followed Musk's substantial spending in the midterm elections. In Texas, where both companies are headquartered, Musk had supported Democratic candidates who ultimately lost their races. Reports indicate Musk invested $230 million to oppose US Senate candidate James Talarico, $5 million to support an opponent in the governor's race, and $500,000 in the lieutenant governor's race, which was won by Democrat Vikki Goodwin.

Dan Ives, managing partner at Yorkville Ives, noted in a Thursday memo, "We will believe a SpaceX/Tesla merger happens but now faces a much tougher regulatory roadmap to get this deal done in 2027 given this new political blue roadmap in DC/Texas."

In contrast, gold prices reached a two-week high on Thursday. Spot gold, often considered a safe haven during economic uncertainty, rose by just over one percent to $4,115 per ounce.

Technology stocks also contributed to a decline in the European benchmark stock index on Thursday, as investors evaluated the sector's outlook following the Democratic sweep in the US midterm elections, according to Reuters. Ipek Ozkardeskaya, senior analyst at Swissquote Bank, observed, "It’s really a story of a rotation happening from technology to non-technology and from the US to non-US markets as a result of the midterm elections and the very aggressive Democratic sweep."