Stocks in the United States fell sharply on Thursday as investors sold shares of technology companies on expectations that Democratic victories in this week's midterm elections could slow construction of the data centers that support artificial intelligence services.1,2
The decline was broad but concentrated in companies tied to artificial intelligence, and it reversed a rally on Wednesday after the election results clarified which party would control the House and Senate. Market analysts said the sell-off reflected concern about tougher scrutiny of data center expansion and about the scale of spending on artificial intelligence.1,2,4
The size of the intraday declines differed between outlets reporting at different times. CBS News reported in early-afternoon trading that the Nasdaq Composite had tumbled 1,285 points, or 5%, while the S&P 500 had dropped 300 points, or 3.9%, and the Dow Jones Industrial Average had plunged 1,586 points, or nearly 3%. The Guardian reported the Dow down more than 1,000 points, or 2%, to 52,264 points in late morning trading, and ABC News described a Dow plunge of 1,200 points. CBS News and The Guardian both described Thursday as on track for the worst day since the tariff announcement shock in April 2025, while The Guardian said the Nasdaq had entered correction territory, more than 10% below its recent record high, and was heading for its worst day in 18 months.1,2,5
"Even though the market rallied Wednesday after the midterm elections, there were visible cracks in the AI ecosystem, and they widened on Thursday amid investor concerns about a potentially slower data center buildout with Democrats in charge of Congress," Chris Larkin, a managing director of trading and investing for E*TRADE from Morgan Stanley, said in an email. Wall Street analyst Adam Crisafulli of Vital Knowledge said investors were reacting to growing headline risks around artificial intelligence, while Joe Maher, a markets economist at investment research firm Capital Economics, said equities were on track for their worst day since the Liberation Day shock in April 2025, when President Trump announced tariffs on countries around the world.1
Analysts pointed to expectations that newly elected Democratic governors and local officials would restrict data center projects after a series of gubernatorial wins and local votes on the issue. The facilities have spurred widespread public opposition, and market watchers think the Democrats' sweeping electoral victories this week could bolster opponents of data centers. Strategists at Morgan Stanley said, "Key market implications include incrementally negative AI sentiment on greater expectations for data center restrictions." Economists at Goldman Sachs said, "At the federal level, the outcome is less likely to change the outlook for data center and AI regulation, which would still need bipartisan support. However, Democratic wins at the state and local level are likely to lead to short-term data center moratoria, potentially affecting about 45% of planned US data center capacity expansion."1,2,4
Several Democrats who won governor's races on Tuesday have called for a pause in data center construction in their states, including Keisha Lance Bottoms in Georgia and Amy Acton in Ohio, while in Texas Democrat Gina Hinojosa defeated Republican Gov. Greg Abbott. Texas has been a major focus for artificial intelligence investors, and Tobin Marcus, Wolfe Research's head of U.S. policy and politics, wrote that Texas "is the one state with enough scale" where a slowdown could make a difference. Evercore's Sarah Bianchi wrote late Tuesday, "Democrats winning gubernatorial races in Texas, Ohio, and Georgia — which have a significant share of the U.S. project pipeline — means new pauses and restrictions on data center development."4
Chip and other stocks exposed to artificial intelligence fell heavily. Reports differed on the intraday move in Nvidia, the chipmaker at the heart of the AI boom, with CBS News reporting a 7.5% decline that made it the heaviest weight on the S&P 500 a day after a 3.2% drop, and The Guardian reporting a 6.7% decline that made it the top faller on the Dow, followed by Goldman Sachs, down 5.7%. CBS News reported that Advanced Micro Devices tumbled 14.6% and CoreWeave, a company that rents access to AI chips over the cloud, fell 12.1%, while The Guardian reported that memory maker SanDisk tumbled by 19% and hard drive maker Western Digital fell by 16.5%. Tech analyst Dan Ives said, "There is no way to sugarcoat that Democrats taking control, especially over the Senate, will create some major hurdles for AI and tech legislation in the Beltway over the next two years."1,2
Thursday's losses followed gains on Wednesday, when the Dow rose 1,569 points in its best day since April 2025, the S&P 500 surged 1.58% in its best day since August, the Nasdaq Composite closed higher by 1.4% and the Russell 2000 tracking small and medium-size companies rose 1.5%. Wall Street welcomed the clarity of the election results, which marked a departure from previous years when it took several days for decisive projections, and as the earliest results began to roll in Tuesday night, Nasdaq 100 futures plunged as much as 2.5%. But by Wednesday, the picture had changed dramatically. "The combination of a large Democratic majority in Congress and President Trump's statement that he is willing to work with the opposition should act as a break on extreme policy outcomes and bring down risk premia," George Saravelos of Deutsche Bank said in a note Wednesday morning. "The market is increasingly likely to interpret surprising policy shifts from the Executive as time-bound by the next Presidential election or the new domestic political configuration," he added.4
Keith Lerner, chief investment officer at Truist, noted that since 1946 stocks have been higher a year after every midterm election. "Simply moving past the uncertainty of the midterms has also often led to a relief rally," he said. On Wednesday, shares of Amazon, Microsoft and Alphabet, the parent of Google, rose 6%, a move investors linked to the view that those cloud providers already had capacity in place if construction slowed, while Apple also rose 6% to a record high. By contrast, SpaceX and Tesla, run by Elon Musk, who spent hundreds of millions of dollars backing Republicans in the midterms, fell more than 3%, and shares of Trump Media & Technology Group, which owns Truth Social, fell 25% to an all-time low.4
Volatility rose alongside the declines. The VIX, Wall Street's 'fear index', jumped by 40% to its highest levels since the early weeks of the Iran war, a move CNBC described as the largest surge since April. The price of Brent crude oil rose 2.6% to $97.11, recovering much of a decline of nearly 9% the day before, with uncertainty continuing about the war with Iran and when the global energy industry could return to normal. An early rally in Europe faded, with Britain's FTSE 100 closing down 46 points, or 0.4%, at 10782.66.1,2,3,4
Investors said they were concerned that large spending on artificial intelligence had lifted valuations beyond company fundamentals. Trillion-dollar companies including Amazon, Nvidia, Microsoft and Alphabet, along with smaller data center startups, have put hundreds of billions of dollars into AI models, data centers and equipment, and the boom helped lift the Nasdaq 100 by 40% since Election Day 2024, compared with about 30% for the S&P 500. "Whether the midterms shock turns out to be the catalyst that derails the AI equity boom remains to be seen, but it strengthens our sense that the boom is in its final innings," Maher said. Neil Wilson, investor strategist at Saxo UK, described Thursday as a "complete capitulation level event" in technology stocks and said, "The fear is a total momentum unwind as Democrats pace the frontier and kibosh datacentre buildout … this looks totally overdone but the nature of 'sell everything' in this market means we need to look for some stability first."1,2,4
Economists at Goldman Sachs wrote that Democrats might use fiscal deadlines to try to limit some of President Donald Trump's actions, saying, "We expect Democrats to use fiscal deadlines to seek to limit the war with Iran, roll back selected tariffs, and reverse spending cuts enacted last year." Analysts at JPMorgan Chase pointed to investigation risk for CEOs with close ties to Trump after major companies, including Nvidia, Apple and Comcast, the parent of NBC News, donated millions of dollars to Trump's projects including his ballroom, and top Democrats signaled interest in launching investigations of some of Trump's projects in January, when the new congressional majority would give them subpoena power. A slowdown in building data centers could affect large investments already made.4,1
