Democratic wave triggers $2.5 trillion AI stock rout as Wall Street fears curbs on data centres

New Delhi: The sweeping Democratic victory in the United States midterm elections has triggered a massive sell-off in artificial intelligence and technology stocks, wiping approximately $2.5 trillion from the Nasdaq 100 as investors reassess the future of America’s rapidly expanding AI infrastructure industry. The market turmoil reflects growing fears that tighter regulatory oversight, political opposition to energy-intensive data centres and mounting doubts over investment returns could disrupt one of the principal drivers of the US economy.

The technology-heavy Nasdaq Composite plunged 5.5 per cent on Thursday, recording its steepest single-day decline since the tariff-related market collapse of April 2025. The broader S&P 500 lost 4.4 per cent, while the Dow Jones Industrial Average dropped 1,833 points, or 3.4 per cent, as the selling spread beyond technology companies into other sectors.

The scale of the decline marked a significant reversal for an industry that had attracted enormous investment on expectations that AI would transform businesses and generate substantial long-term profits. According to Reuters’ updated market report, the Nasdaq Composite has fallen nearly 12 per cent from its October 6 record, placing it firmly in correction territory.

Why Democratic victory has rattled investors

The Democratic Party’s election gains have heightened expectations of stricter scrutiny of data-centre development, particularly as opposition grows in communities concerned about electricity prices, water consumption and pressure on public infrastructure. Investors fear that Democratic control of Congress, combined with victories in several governorships, could translate into tougher approval requirements, construction restrictions and closer examination of the industry’s environmental and economic consequences.

An analysis by UBS has added to those concerns, estimating that approximately 30 per cent of the data-centre capacity scheduled to be added in the United States in 2028 could face risks from potential construction pauses. Such disruptions would have consequences across the AI supply chain, affecting semiconductor manufacturers, electricity producers, construction companies and specialist cloud-computing providers.

The political challenge extends well beyond Washington, with state governments and local authorities exercising considerable influence over land use, construction permits and utility connections. An AP investigation found that restrictions on data-centre development received substantial support in local referendums, reflecting growing public unease about the facilities’ impact on surrounding communities.

The issue featured prominently in the midterm campaigns, with candidates linking the expansion of massive computing facilities to rising household electricity bills and pressure on water supplies. However, tighter regulation remains a possibility rather than an established outcome, and the speed or extent of any restrictions will depend on legislative decisions and individual state policies.

AI companies bear the brunt

Companies directly involved in building and operating AI computing infrastructure suffered some of the sharpest losses, reflecting their dependence on sustained investment and access to financing. CoreWeave, a specialist cloud-computing provider, fell 10 per cent, while rival Nebius plunged 15 per cent, leaving both companies with share prices at least 50 per cent below their October peaks.

Other infrastructure operators experienced similarly severe declines, with Applied Digital, Cipher Digital and IREN each losing more than 14 per cent during Thursday’s session. The semiconductor industry was particularly badly affected, as the Philadelphia Semiconductor Index tumbled 12 per cent, Nvidia declined 9 per cent and Advanced Micro Devices plunged 17 per cent.

The sell-off also spread to companies supplying electricity and equipment for large computing facilities, demonstrating the breadth of the industry’s investment network. GE Vernova dropped 7.4 per cent, Constellation Energy declined 2.5 per cent and Microsoft lost 3.6 per cent, as investors questioned whether ambitious infrastructure projects could proceed on their original schedules.

Investment boom faces financial reality check

Beyond the immediate political uncertainty, Wall Street is increasingly questioning whether the extraordinary expenditure on AI infrastructure can produce profits sufficient to justify current valuations. Developers must finance expensive graphics processors, cooling systems, electricity connections and computing facilities, often years before the projects can generate their anticipated revenues.

These concerns are especially serious for smaller cloud-computing companies that rely heavily on borrowed capital to finance expansion. CoreWeave’s five-year credit-default-swap spread climbed to a record 1,267.9 basis points, according to S&P Global Market Intelligence figures cited by Reuters, indicating heightened market concern about its credit risk.

The resulting uncertainty could encourage investors to distinguish more carefully between established technology companies with diversified revenues and infrastructure providers whose financial prospects depend heavily on continued AI investment. Although the industry’s long-term potential remains considerable, expectations of uninterrupted expansion are increasingly being challenged by financing costs, regulatory risks and doubts about commercial returns.

Shockwaves reach Asian technology markets

The consequences of Wall Street’s retreat became apparent across Asia on Friday as investors reduced their exposure to semiconductor manufacturers and companies associated with AI infrastructure. South Korea’s Kospi plunged more than 8 per cent, triggering a temporary trading suspension, while Japan’s Nikkei fell sharply as concerns spread through regional technology supply chains.

India, however, showed greater resilience, with benchmark equity indices rising despite the broader Asian sell-off. Reuters reported that lower crude oil prices, renewed foreign institutional investment and the Indian market’s relatively limited exposure to the global AI infrastructure trade helped support domestic equities.

The developments underline how rapidly political decisions in the United States can affect technology investment worldwide, particularly in economies closely integrated into semiconductor manufacturing and advanced computing supply chains. For the AI industry, the immediate challenge is no longer simply expanding computing capacity but demonstrating that its financial returns can justify the enormous costs of building and operating it.