AI-linked shares tumble after US midterms, amid longer-running investment concerns

The Nasdaq Composite fell 5.5% on Thursday 5 November, while the broader S&P 500 dropped 4.4%. Shares linked to the construction of AI data centres led the sell-off, according to the Associated Press.

The decline followed a midterm election in which Democrats won both chambers of Congress. Their new majorities will take effect when the next Congress begins on 3 January 2027.

Some analysts see a connection between the result and the market fall. Melissa Brown, head of investment decision research at SimCorp, told Reuters that investors appeared to be recognising that some newly elected members of Congress and governors wanted to slow the development of AI infrastructure. She said a slowdown could raise concerns for a growth story that has depended on building that infrastructure rapidly.

Data centres house the computing equipment needed for AI, but their use of electricity and water has prompted opposition in some communities. In Texas, Democratic governor-elect Gina Hinojosa has pledged a moratorium on new data centre construction. Democrats in Congress have also called for legislation addressing electricity costs linked to the facilities and testing of AI systems.

Investors’ concerns were not new, however. Before the election, Reuters reported that they were questioning how major AI investments would be financed and whether the returns would justify the spending. The S&P 500’s technology sector fell 6.8% in October, although nine of the index’s 11 sectors rose that month.

Thursday’s fall does not establish how much of the decline was caused by the election, or whether an AI bubble has burst. Even after the drop, the Nasdaq was still 4.6% higher for the year, according to AP.

Tudor Brown, a co-founder of the chip designer Arm, told the BBC he expected the impact to be limited. He said share valuations had been inflated by expectations of almost limitless AI growth, but that the companies were still making substantial money.