Tech Stocks Lose $2 Trillion After Midterms

More than $2 trillion in market value vanished from the tech-heavy Nasdaq on Thursday. The index fell by more than 5%, a sharp decline that dragged down the Dow Jones Industrial Average and the S&P 500 as well. This drop marked a sudden reversal from Wednesday, when shares had risen across the board after the midterms concluded without a split Congress.

The sell-off began two days after Democrats secured sweeping victories in national and state elections. Investors reacted to the prospect of a new Democratic Congress taking steps to regulate the artificial intelligence sector. The market move reflected concern over a specific voter mandate: resistance to the rapid expansion of AI data centers. Many residents have expressed worry that these facilities will consume large amounts of water and energy. Democrats who won these races pledged to push back against the proliferation of such projects.

AI-dependent companies faced the heaviest losses. Tesla and SpaceX, both controlled by Elon Musk, saw their shares fall particularly sharply. Musk spent hundreds of millions of dollars attempting to elect more Republicans. Investors now fear that Musk and his business interests may face closer scrutiny when the new Congress takes office in January.

State-level results also influenced market sentiment. Democrats who campaigned on slowing AI development won key governorships. Gina Hinojosa’s victory in the Texas governor’s race was a particularly notable outcome. These state wins add another layer of potential regulatory oversight for the industry.

David Busch, chief investment officer of Trajan Wealth, noted the shift in investor sentiment. “There is some concern regarding AI regulation, and fears that there could be far more regulations coming to AI technology, as well as a pushback on the buildout of data centers across the country,” Busch said.

The decline comes after a rough year for technology stocks. Wall Street investors have increasingly questioned whether massive AI investments will yield returns soon. AI remains a major driver of the U.S. economy, which posted 3.4% annual growth in the third quarter. However, average Americans also hold exposure to these stocks through 401(k) plans and pension funds, leaving them vulnerable to prolonged market declines.

The new Congress is scheduled to convene in January. At that time, lawmakers will begin the legislative process that could shape the regulatory framework for artificial intelligence and data center construction.