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Artificial intelligence stocks tumble after Democratic midterm sweep raises data-center doubts

Artificial intelligence stocks tumble after Democratic midterm sweep raises data-center doubts

Money Moves

Nasdaq Composite rebounds 1.09% a day after the Nasdaq 100's 6.4% slide, as voters pass at least 44 local data-center measures and UBS puts roughly a third of 2028 US capacity at risk.

5 days ago: Tech stocks rebound after Thursday's rout

Overview

Updated 3 days ago

Technology stocks steadied on Friday, a day after the Nasdaq 100's 6.4% plunge. The Nasdaq Composite rose 1.09% to 24,579.42, the S&P 500 added 0.31% and the Dow Jones Industrial Average slipped 0.46%.

The political fight behind the selloff has not gone away. Voters passed at least 44 of 47 local measures to restrict data centers, and at least 46 projects across 20 states have been blocked, withdrawn or stalled after community opposition. UBS estimates nearly one-third of the computing capacity expected to come online in the United States in 2028 is now at risk, much of it planned for Texas.

Why it matters

Data centers are the physical bet behind the AI rally; if they stall, the earnings power of chipmakers and cloud companies falls with them.

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Key Indicators

$3.2T
Market value erased
Reported losses across Wall Street in Thursday's selloff.
6.4%
Nasdaq 100 decline
The tech-heavy index had its worst day since March 2020.
4.4%
S&P 500 decline
The broad index fell 4.4% on Thursday, its worst day since April 2025.
1.09%
Nasdaq Composite rebound
Friday's close of 24,579.42 recovered only part of Thursday's losses.
28.36
VIX close
An eight-month high for Wall Street's fear gauge on Thursday.
$47B
Leveraged exchange-traded fund selling
Nomura's estimate of rebalancing sales into Thursday's close.
46
Data-center projects blocked or stalled
Projects across 20 states cancelled, withdrawn or stalled after local opposition, according to research cited by CNBC.
30%
2028 data-center capacity at risk
UBS estimate of expected United States additions threatened by construction pauses.

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People Involved

SS
Steve Sosnick
Chief strategist at Interactive Brokers
Active market strategist
EY
Ed Yardeni
President of Yardeni Research
Active market analyst
 Melissa Brown
Melissa Brown
Global head of investment decision research at SimCorp
Active analyst
 Gina Hinojosa
Gina Hinojosa
Texas governor-elect
Governor-elect; pledged to halt new data-center construction until safeguards are in place
 Dan Ives
Dan Ives
Partner and senior managing director at Yorkville Ives & Co.
Active market analyst
 Keisha Lance Bottoms
Keisha Lance Bottoms
Georgia governor-elect
Governor-elect; takes office in January

Organizations Involved

The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
Stock exchange
Operates the Nasdaq 100 and Nasdaq Composite indexes at the center of the selloff.

Nasdaq runs the two indexes that measured Thursday's AI stock rout.
UBS
UBS
Global investment bank
Published estimate on data-center construction risk.

UBS gave investors a concrete estimate of how much AI data-center capacity could be delayed.
IB
Interactive Brokers
Brokerage
Its chief strategist described the rush for protection.

Interactive Brokers is a brokerage that handles heavy retail and professional options trading.
OpenAI
OpenAI
Artificial intelligence company
Changing how it deals with host communities.

OpenAI is one of the companies behind the data-center building boom and is now trying to answer local opposition.

Timeline

12 events Latest: 5 days ago Showing 8 of 12
Tap a bar to jump to that date

  1. Tech stocks rebound after Thursday's rout

    Latest Markets

    The Nasdaq Composite rose 1.09% to 24,579.42. Nvidia gained about 3%, Micron 5% and AMD about 11%, recovering only part of the prior day's losses.

  2. Research counts 46 blocked or stalled data-center projects

    Industry

    At least 46 AI data-center projects across 20 states have been blocked, withdrawn or stalled after community opposition, according to research reported by CNBC.

  3. Nasdaq 100 plunges 6.4% in AI selloff

    Markets

    The tech-heavy index erased about $2.5 trillion in market value; the VIX jumped to 28.36.

  4. Leveraged funds sell about $47 billion into the close

    Markets

    Nomura estimated rebalancing by leveraged and inverse funds amplified the decline.

  5. Goldman Sachs reports hedge fund losses

    Markets

    Goldman Sachs told clients its hedge-fund clients were down significantly on AI exposure.

  6. OpenAI drops nondisclosure pacts with public officials

    Industry

    OpenAI said it would stop using nondisclosure agreements with public officials and give residents access to construction plans, as it tried to rebuild trust with host communities.

  7. Hinojosa says Texas should stop data-center construction

    Politics

    The Texas governor-elect told CNN she wants new data centers halted until the state has rules to protect rural communities. Texas has 169 operating data centers, 118 under construction and more than 500 planned.

  8. Stocks rally as investors bet on divided government

    Markets

    The Nasdaq and S&P 500 rose as investors initially brushed aside data-center risk.

  9. Qualcomm and Arm report mixed results after the close

    Earnings

    The chipmakers' results added to concerns about AI hardware demand.

  10. Georgia governor-elect promises data-center pause

    Politics

    Keisha Lance Bottoms said on CBS Mornings she would sign an executive order pausing new data-center construction after taking office in January.

  11. Democrats win midterm races across the country

    Election

    Voters elected Democrats, including candidates who pledged to slow or halt AI data-center construction.

  12. Voters pass most local data-center restrictions

    Election

    At least 44 of 47 measures to restrict data centers, ranging from bans to temporary moratoriums, passed, with a few still pending.

Scenarios

1

Major cloud company cuts 2027 data-center spending

Possible Resolves by Q2 2027

Discussed by: UBS analysts and Yardeni Research

If local permitting resistance turns into delayed projects, a major cloud company could trim its capital spending forecast. UBS estimated about 30% of expected 2028 United States data-center capacity additions could be at risk from construction pauses.

2

Nasdaq 100 falls into a bear market

Possible Resolves by Jan 31, 2027

Discussed by: Steve Sosnick of Interactive Brokers and other market strategists

If the AI re-evaluation is lasting, the index could extend losses beyond 20% from its peak. The VIX's jump shows investors are buying protection against further weakness.

3

AI trade recovers to pre-selloff high

Possible Resolves by Q2 2027

Discussed by: Ed Yardeni of Yardeni Research

Yardeni called the move a bubble losing air, not bursting. If earnings hold and political resistance stays local, buyers could return and lift the index back to its prior close.

4

Congress passes data-center permitting limits

Unlikely Resolves by Nov 5, 2027

Discussed by: NPR and NBC News reporting on candidates' pledges

Hundreds of candidates pledged to rein in data centers. A federal bill could formalize local vetoes or require environmental reviews before new projects proceed.

5

Texas halts new data-center approvals in 2027

Possible Resolves by Q2 2027

Discussed by: Gina Hinojosa and UBS strategists

Hinojosa has promised to stop new data-center construction until Texas writes protections for host communities. UBS estimates most of the 2028 capacity at risk sits in Texas, so a formal halt after she takes office would make that estimate concrete.

Historical Context

2 moments from history that rhyme with this story — and how they unfolded.

March 2000-October 2002

Dot-com bubble burst (2000-2002)

The Nasdaq Composite peaked in March 2000 after a run in internet and telecom stocks. It then fell about 78% by October 2002 as overbuilt fiber networks and weak profits exposed the gap between spending and returns.

Then

Telecom and internet stocks collapsed, and many companies failed.

Now

The buildout left cheap fiber capacity that later supported broadband, but investors lost heavily.

Why this matters now

Today's AI spending boom raises the same question: whether data-center investment will earn returns before political or financial resistance bites.

January-December 2022

2022 growth-stock selloff

The Federal Reserve raised interest rates from near zero to fight inflation. The Nasdaq Composite fell about 33% in 2022 as investors discounted future profits at higher rates.

Then

High-multiple technology stocks fell sharply, and layoffs followed.

Now

AI stocks led the next rally, showing that rate shocks can reset valuations without ending a technology cycle.

Why this matters now

Thursday's selloff mixed a rate-sensitive market with a new political risk, making the AI trade vulnerable to both.

Sources

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SignalPro News CNBC Reuters via StreetInsider Reuters The Hindu BusinessLine Yahoo Finance NBC News NPR Associated Press CNA Financial Times Newsweek CBS News Moneyweb (Bloomberg) Axios Calcalistech CNBC