Wall Street’s $4.7 trillion loss: AI stocks fall on election result
US stocks lost US$3.2 trillion ($4.7 trillion in Australian dollars) in one session as investors priced in Democratic control of Congress and more governorships. AI and data-center shares led the drop, with chipmakers hit hardest.
Wall Street’s $4.7 trillion meltdown on Thursday, equal to US$3.2 trillion, was driven mainly by artificial intelligence stocks after Democrats took control of both chambers of Congress. The broad market fell 4.3 percent in the session.
The tech-heavy Nasdaq index dropped 5.5 percent. The Philadelphia Semiconductor Index, which tracks the largest chipmakers, slumped more than 11 percent.
Why AI shares took the hit
Data centers, the power-hungry buildings that run AI systems, featured heavily in the winning Democratic campaigns. Candidates tapped voter anger over what the facilities do to neighborhoods, electricity bills and water supplies.
The governors’ races may matter even more to the industry than Congress, where new rules on AI and data-center construction could emerge. Before the elections, Republicans led 26 states and Democrats 24. After them, Democrats will hold 30 governorships and Republicans 20.
Texas is the center of data-center building, with between 25 percent and 30 percent of all facilities under construction or planned. It now has a newly elected Democratic senator and a new Democratic governor, both of whom campaigned against unrestricted development.
A bottleneck gets tighter
Data-center construction was already a bottleneck for AI, and local opposition was making it worse. Capacity was growing more slowly than the computing demand from frontier labs and hyperscalers, the giant cloud companies that buy most of the hardware.
Hyperscalers spent around US$750 billion this year and were expected to spend more than US$1 trillion next year. A slowdown in capacity would feed back into lower spending across the AI industry. If data-center building slows, AI development more broadly slows with it.
The article’s argument is that this could prove a silver lining for some companies, investors and economies. In the US alone, AI investment has contributed as much as a third of economic growth while also adding to inflation.
Funding was already strained
Shares in hyperscalers, chipmakers and the “neocloud” firms building data centers had already fallen sharply from highs earlier this year. Yields on bonds issued by hyperscalers and companies such as SpaceX had spiked. The cost of credit default swaps, a form of insurance against losses on debt, had soared.
The Bank for International Settlements says more than half of all AI investment comes from other AI firms. Nearly half the value of deals for cloud capacity and chips is driven by the supply chain. That circular financing leaves the sector exposed if one key player in the chain stumbles.
Investors on Thursday priced in the knock-on effects of slower data-center construction. Even the “Magnificent Seven” big tech stocks fell, though by a smaller 4.5 percent.
