Tech stocks slide as Democrats' midterm wins raise fears over AI rules

Sell-off across the tech sector

The Nasdaq 100 fell 4.7% to 27,113 points, moving toward one of its largest one-day losses in recent years. The S&P 500 dropped 2.5% to 7,495 points and the Dow Jones Industrial Average lost 1.5% to 52,578 points. Chip-related stocks, which had been the biggest beneficiaries of the AI boom, led the decline. Tesla and SpaceX, both linked to Elon Musk, also fell, with their shares down almost 5% in after-hours trading and about 4% in the morning session in New York. The sell-off came two days after Democrats won majorities in both chambers of Congress in the US midterm elections.

Nasdaq 100-4.7%

S&P 500-2.5%

Dow Jones Industrial-1.5%

Nasdaq 100

-4.7 %

S&P 500

-2.5 %

Dow Jones Industrial

-1.5 %

Data from the article text

Fear of tighter AI rules

Investors worry that a Democratic-controlled Congress could slow the expansion of AI infrastructure or block new data centers. Analysts see markets in a rotation triggered by expectations for future US policy, and the weak showing of Republicans hit technology stocks in particular. Doubts also persist about whether the billions spent on AI chips, data centers and power supply will ever pay off. Tech analyst Dan Ives expects the Democratic win to create considerable hurdles for AI legislation over the next two years. Neocloud providers such as CoreWeave, which rent out GPU computing power for AI applications, fell, while large tech groups such as Amazon rose despite the sector-wide worries.

Data centers and local opposition

Candidates made resistance to the AI boom a central campaign issue, and residents near facilities fear rising energy and water prices. Polls show three in four Americans do not want a data center in their neighborhood. Gina Hinojosa, elected governor of Texas, announced a data-center moratorium during her campaign, and James Talarico, the newly elected Texas senator, has said something similar. Sherrod Brown, the newly elected Democratic senator from Ohio, said he works for Ohio rather than power companies, data-center operators or Wall Street. Wood Mackenzie says objections have already delayed a fifth of all projects, and Ohio, South Carolina and Texas are among the states where data centers are being built or planned.

Musk and the policy outlook

Musk backed Republicans with more than 200 million dollars in the elections, without success, and afterward joked that data centers in space now look quite attractive. Ted Lieu, a Democratic congressman from California, has announced laws to control AI, and data centers are expected to be on Congress's agenda. Trump has announced he will use his veto, which will shape how far such bills can get over the next two years. Lisa Su, head of AMD, told CNBC she sees no reason to revise her company's plans because global demand is so strong. John Vinh told Bloomberg that a real slowdown in data-center construction could affect AI companies.

Market outlook

Asian markets fell when the first results came in but recovered quickly. Past periods of divided government did not necessarily weigh on equity markets, though valuations remain high and a further geopolitical shock could be enough to push stocks lower. The central question is whether the enormous AI investments eventually produce productivity gains and positive cash flows. Trump has pushed for fast expansion of data centers, and Democrats could use their new power to block exactly that.