AI Stocks Lead Sharp Selloff on Wall Street After Democratic Midterm Sweep

US stock markets dropped on Thursday as steep losses in chip and data centre-related companies weighed on the technology sector, a day after Democrats secured sweeping wins in the midterm elections.

In midday trading, the tech-heavy Nasdaq was down 4.8 percent, while the S&P 500 lost 3.6 percent and the Dow Jones Industrial Average slipped 2.8 percent.

The decline reversed a rally on Wednesday, when markets rose on relief that Democrats' victories signalled limits on policy shocks from a Congress at odds with the White House. Investors were also reassured by President Donald Trump's remarks that he would accept the election results.

Artificial intelligence stocks, which have powered much of the market's growth, led the plunge. Of 45 data centre ballot initiatives across the country, voters backed restrictions on most of them. According to Data Centers on the Ballot, 39 ballot measures to restrict AI were successful, and only one, in North Dakota, voted against restrictions. UBS analysts estimated that potential construction pauses could put roughly 30 percent of planned US data centre capacity additions in 2028 at risk, according to Reuters.

"Yesterday, markets rallied on certainty as election results removed a layer of uncertainty. Today, portfolio managers and analysts are digging into the implications and adjusting expectations for potential political resistance to AI infrastructure, particularly at the state and local levels," Michael Monaghan, portfolio manager of the Founders 100 ETF, told Al Jazeera. "We're seeing that concern reflected in the selloff across semiconductors and hyperscalers."

Data centre operators and neocloud firms slumped, with CoreWeave down more than 12 percent and Nebius Group down nearly 17 percent. Among semiconductor companies, AI market leader Nvidia fell 8.2 percent, Micron dropped nearly 14 percent and Intel lost 6.8 percent in midday trading. AI server manufacturer Dell shed nearly 13 percent. Other tech giants were also lower, with Amazon down 2 percent and Meta, the parent company of Facebook and Instagram, down 3.8 percent.

SpaceX shares sank 9.5 percent, while Tesla, also owned by billionaire Elon Musk, fell more than 11 percent after Musk's nearly half-billion-dollar midterm election spending spree. In Texas, where both companies are headquartered, Musk backed candidates who went on to lose. He spent $230m to defeat US Senate candidate James Talarico, $5m to support Gina Hinojosa's opponent in the governor's race and $500,000 in the lieutenant governor's race, which Democrat Vikki Goodwin won.

"We will believe a SpaceX/Tesla merger happens but now faces a much tougher regulatory roadmap to get this deal done in 2027 given this new political blue roadmap in DC/Texas," Dan Ives, managing partner of Yorkville Ives, said in a note on Thursday.

Gold, typically seen as a safe investment in times of economic uncertainty, climbed to a two-week high, with spot prices jumping just over one percent to $4,115 per ounce. Technology stocks also dragged the European benchmark index lower as investors weighed the sector's outlook after the Democratic sweep, Reuters reported.

"It's really a story of a rotation happening from technology to non-technology and from the US to non-US markets as a result of the midterm elections and the very aggressive Democratic sweep," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.