The celebration didn’t last a day. On Thursday, U.S. stocks suffered their worst drop since April, as investors abruptly reversed course on the artificial intelligence trade following the Democrats’ midterm sweep. The Nasdaq Composite plunged 5.5 per cent, the S&P 500 fell 4.4 per cent, and the Dow Jones Industrial Average lost 1,833 points, or 3.4 per cent — more than erasing the 1,569-point gain it had posted in Wednesday’s post-election rally.
AI-related companies took the heaviest losses. The Philadelphia Semiconductor Index — a benchmark of chip makers — tumbled about 12 per cent, wiping out roughly $2.3 trillion in market value across the market in a single session. Nvidia, the company most associated with the AI boom, fell roughly 9 per cent, while AMD plunged about 17 per cent and memory-chip maker SanDisk dropped 22 per cent. Companies that build and power data centres — the enormous facilities filled with servers that run AI systems — were also sold heavily. The Nasdaq finished the day in correction territory, more than 10 per cent below its October record.
The rout was a sharp reversal of Wednesday’s mood. After Democrats swept both houses of Congress and won several governors’ races on Tuesday, stocks had surged: the Dow rose 3 per cent, its best day since April 2025, and nine of the S&P 500’s 11 sectors gained, from banks and home builders to Walmart. Investors initially bet that a Democratic Congress would check President Trump’s power — resisting deficit spending, challenging tariffs and pressing to end the war with Iran, which has pushed up energy prices and inflation. Vice President JD Vance blamed the loss on the war, saying “the reason we lost is the war.”
By Thursday, attention shifted to what the result means for AI itself. New Democratic governors in five states key to data-centre development, including Texas and Ohio, have promised closer scrutiny of these projects’ effects on electricity prices, water use and local communities. On Wednesday, some investors argued that slower construction might actually help tech giants such as Microsoft, Alphabet and Amazon by limiting supply. A day later, the darker reading took over: if the build-out slows and regulators tighten oversight, the chip makers and suppliers that profited from the spending boom could see orders dry up — especially with many AI stocks already priced for perfection. “In a world where the AI boom is everything, the implications are enormous,” said Bob Elliott of Unlimited Funds.
“The AI trade was taking up all the oxygen in the economy,” said Michael Antonelli, a strategist at Baird — which is why Thursday’s selling spread far beyond technology, hitting small companies and nearly every sector. Oil, which had plunged on Wednesday on hopes of peace, and defence stocks also swung sharply during the week.
Analysts caution that two wild days do not settle anything. “The Democrats are not your best friend,” warned David Rosenberg of Rosenberg Research, noting the party could eventually back tax increases that weigh on stocks. The new Congress will not be sworn in for months, and President Trump can still move markets with a single post or policy decision. What is clear is that the market’s two-year story — spend whatever it takes on AI — now has a political challenger. Expect a volatile winter.
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