Nasdaq sees worst day in 18 months as investors bet on AI slowdown after Democrats’ election triumph

The Nasdaq Composite index endured its most severe trading day in 18 months, plummeting 5.5% and entering what analysts term "correction territory," signifying a drop of more than 10% from its recent peak. This dramatic sell-off resulted in nearly $2tn being shaved off the index's value by the close of trading on Thursday. The magnitude of this decline was compared to the market's reaction to Donald Trump's "liberation day" tariffs in April 2025, underscoring the severity of investor apprehension. The market's "fear index," the VIX, surged by 61%, reaching levels not seen since the early weeks of the Iran war, indicating a sharp increase in volatility and investor anxiety.

The repercussions of this market event were not confined to the US, as the heavy falls extended into Asian markets on Friday. Japan's Nikkei 225 index sank 6%, while South Korea's Kospi index tumbled more than 8% in early trading, illustrating the global interconnectedness of financial markets and the widespread impact of concerns over AI spending. Major US indices like the Dow Jones Industrial Average and the S&P 500 also recorded substantial losses, falling 3.4% and 4.3% respectively, with chip stocks such as SanDisk and Western Digital experiencing particularly steep declines of 22% and 17%.

Analysts largely attributed the market's sharp reversal to the outcome of the US midterm elections, specifically the success of Democratic governors and local ballot initiatives rejecting new datacenters. This political shift has fueled expectations that Democratic administrations will implement stricter regulations and potentially impede the expansion of datacenter infrastructure, which is vital for the growth of the artificial intelligence industry. Neil Wilson, an investor strategist at Saxo UK, characterized the event as a "complete capitulation-level event" in tech stocks, driven by fears of a "total momentum unwind" as Democrats potentially "kibosh datacenter buildout." This sentiment reflects a significant re-evaluation of the regulatory landscape for tech companies.

Tech analyst Dan Ives reinforced these concerns, warning that Democratic control, particularly over the Senate, would create "major hurdles for AI and tech legislation in the Beltway over the next two years." This political reality is seen as a direct threat to the previously unbridled growth of the AI sector, which has been a significant driver of market gains. The market's reaction suggests a shift in focus from the speculative "promise of AI" to the more tangible "price of AI," as articulated by Ted Parkhill, founder and CEO of Incline Investment Management. Parkhill noted that while AI's long-term transformative potential remains unquestioned, the current pricing of many AI-related stocks might not be appropriate, foreshadowing continued market turmoil.

This re-evaluation implies that investors are now factoring in the potential costs and delays associated with increased regulatory oversight, rather than solely focusing on technological advancements and revenue projections. The widespread sell-off, particularly in companies central to the AI boom like Nvidia, which was down 9.2%, underscores the market's sensitivity to perceived political headwinds. The initial rally on Wednesday, driven by hopes that Democratic success might restrain the White House, quickly evaporated, replaced by a more profound concern about the direct impact of policy on the tech sector's operational environment and growth prospects.