Tech stocks lose $2 trillion after midterm results

The Nasdaq Composite dropped more than 5% on Thursday. The sell-off erased more than $2 trillion in market value. The Dow Jones Industrial Average and the S&P 500 also declined. This sharp drop marked a sudden change from Wednesday. On that day, investors had pushed shares higher after the midterms concluded without an undecided Congress.

Traders reacted to the election results on Tuesday. Democrats won overwhelmingly in national races and in state contests across the country. The market move reflected concern that a new Democratic Congress would regulate the artificial intelligence industry. Voters also signaled a pushback against the rapid expansion of AI data centers. Many residents worry these facilities will consume large amounts of water and energy.

David Busch, chief investment officer at Trajan Wealth, noted the shifting sentiment. He said there is concern about AI regulation. He added that investors fear more rules for AI technology and resistance to building data centers nationwide.

Stocks tied to AI suffered the most damage. Tesla and SpaceX, both controlled by Elon Musk, fell sharply. Musk spent hundreds of millions of dollars trying to elect more Republicans. His unsuccessful effort leads investors to expect Democratic scrutiny of his companies when the new Congress is seated in January. Other major tech firms, including Meta and Alphabet, also saw shares decline. These companies need to continue building data centers to advance their AI tools.

The sell-off hit at a difficult time for the sector. Technology shares have had a rough year on Wall Street. Investors are questioning whether massive spending on AI will yield returns soon. The tech sector had been a major driver of the U.S. economy. It helped the nation achieve 3.4% annual growth in the quarter that ended in September.

Democrats also won key state races. Gina Hinojosa won the Texas governor’s race in a stunning upset. She had vowed to slow down AI development. The new state leaders may also play a role in shaping how the industry grows in their regions.

The losses are not limited to professional Wall Street investors. Average Americans hold AI company shares through retirement portfolios like 401(k)s and pension funds. These individuals remain exposed to the volatility in the tech sector. It is not yet clear if the rout will continue or spread to other stock categories.