Tech stocks sink as election results scramble the AI boom

The Philadelphia Semiconductor Index fell 12.3% Thursday, its worst day since March 2020. The Nasdaq Composite dropped 1,422 points, or 5.5%, to 24,315, putting it more than 10% below its October high and into correction territory. The S&P 500 fell 4.4%, while the Dow lost 1,833 points, or 3.4%.

Why it matters: The selloff was not just a bad day for a few overexcited chip stocks. Investors have spent years betting that artificial intelligence would require an enormous new buildout of chips, memory, power and data centers. Now they are weighing whether that construction can proceed as planned, and whether the returns will justify the bill.

The political risk: Democrats' sweeping midterm victories sharpened worries that new state and federal leaders could impose tighter AI rules or slow data center construction. Texas governor-elect Gina Hinojosa campaigned for a moratorium on new data centers in the state, one of the country's biggest markets for them. Al Jazeera reported that 39 of 45 ballot measures nationwide aimed at restricting AI or data centers passed. UBS estimated that potential construction pauses could put about 30% of planned US data center capacity additions for 2028 at risk.

The spending question: Mixed earnings from Arm Holdings and Qualcomm added to doubts about an industry already demanding vast investment. Nvidia fell 9.2%, AMD and Micron each dropped about 17%, and SanDisk fell about 22%. Ed Yardeni of Yardeni Research said he did not think the AI bubble was bursting, but that it was "losing some air very, very rapidly." That is a less dramatic sentence than a crash warning, but not one investors enjoyed hearing.

Elon Musk's Tesla and SpaceX also fell sharply after the election. Musk spent hundreds of millions of dollars backing Republican candidates, and both companies have ties to the AI and data center business. President Donald Trump blamed Democrats in a Truth Social post, writing that it was not Republicans, but "Dumocrats."

The selling carried into Asia on Friday, where South Korea's Kospi fell more than 8% and briefly halted trading, while Japanese chip and AI stocks also dropped sharply. The thing to watch now is whether data center projects begin facing concrete delays, or whether Thursday was investors repricing a risk they had mostly ignored.