Tech Rout Wipes Out $2.5 Trillion, With AI Investors Anticipating Heavier Scrutiny From Dems

The Nasdaq Composite fell 5.5%, or an estimated $2.5 trillion in market value, on Thursday. The index descended into correction territory after weak earnings reports in the AI sector and a blue tsunami in the 2026 midterm elections on Tuesday set off a tech stock rout, the Wall Street Journal reported. According to the Journal, shares of “Asian chip makers, Texas power producers, New Jersey compute providers, Silicon Valley software makers, contractors and data-center developers” all tumbled. Traders who had made highly leveraged bets, or wagered the pullback in AI stocks wouldn’t continue, got crushed. The paper reported the “Magnificent Seven” (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) collectively lost around $1 trillion in value, while the PHLX Semiconductor index had its worst day since the depths of the global coronavirus pandemic. Every sector in the S&P 500 finished in the red in Thursday’s selloff, the Journal added. The biggest AI hyperscalers (Alphabet, Amazon, and Microsoft) dodged the worst blows on Thursday, but SpaceX took a hit of more than 9% along with fellow Elon Musk-controlled firm Tesla. That’s likely related to promises of investigations from Democrats, whom the Republican-allied billionaire spent nearly $500 million this cycle trying to keep out of office. This is the biggest Nasdaq single-day percentage drop since April 2025’s “Liberation Day,” according to Reuters, and it is the largest ever in dollar terms, according to the Journal. “Liberation Day” was when President Donald Trump announced sweeping tariffs on goods from around the globe, triggering months of economic chaos. “It seems like the rug is getting pulled out from under it,” Meridian Equity Partners senior managing partner Jonathan Corpina told the Journal, adding the market looks “extremely fragile.” To be clear, the rout so far hasn’t spiraled into the kind of AI bubble-popping panic that critics of the industry’s $10 trillion-plus infrastructure plans say could result if AI firms fail to hit lofty growth goals. Yet the uncertainty is certainly understandable. Congress has sweeping investigative powers, and AI firms’ relationship to the White House will almost certainly be a topic of scrutiny for Democrats. Tech firms are on the party’s bad side after many of their top executives publicly allied themselves with Republicans and the White House in particular over the last few years. It remains to be seen whether the new crop of Democrats will make good on promises of aggressive oversight or fall back on the party’s habit of settling for tweaks at the margins, especially since Trump is still in the White House. An overall vibe shift on AI could also see customers and investors looking at least somewhat more skeptically at AI hype. AI giants have invested so much in growth efforts that former Federal Reserve Bank of New York president Bill Dudley has estimated the sector will probably need $3 trillion in annual revenue to ensure adequate returns. According to Reuters, UBS estimates that around 30% of expected U.S. data center capacity expansion in 2028 may be at risk of construction pauses. “The big election outcome was, especially with the Democrats winning a lot of the governorships, that the slowdown of the data ​center buildout is the real key theme that’s going to stick,” JonesTrading chief market strategist Michael O’Rourke told Reuters. Granite Wealth Management managing director Bruce Zaro told Reuters the pushback against data centers will center on them being “geographically located in someone’s backyard, straining the power grid, straining the water systems.” While some projects are locked in, Zaro added, it will be a “difficult road” for many projects still lacking permits to obtain them.