Updated version 1 - As concerns over AI spending intensify, the Nasdaq may be on the verge of confirming a correction phase.

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Utkarsh Hathi/Johann M Cherian

Reuters, Nov 5 - The Nasdaq index fell more than 10% from its record closing high set on Thursday, setting it on track to enter a correction zone, as concerns about massive AI spending and tighter scrutiny of data center expansion weighed on tech stocks.

The tech-heavy Nasdaq Composite Index .IXIC fell nearly 4% to 24,712.60, more than 10% below its historic closing high of 27,599.89 set on October 6.

Thursday's drop wiped out the gains from the previous session after a major Democratic victory in both houses of Congress, as investors weighed the prospect of stricter oversight on further expansion of AI infrastructure.

Sameer Samana, senior global market strategist at Wells Fargo Investment Institute, said: "When power shifts from unified control by one party to unified control by another, it often creates a great deal of uncertainty, policy breaks, and abrupt changes."

"As Democrats appear poised to win a significant majority in both the House and Senate, we believe this will at least cause the market to pause."

A 10% decline from the recent historical closing high is typically considered a correction. This would be the Nasdaq's second correction so far this year.

In recent weeks, sentiment about AI-related stocks has soured, with the Nasdaq losing over $2.5 trillion in market value in October. Multiple large tech companies are raising funds in the debt market to support planned billion-dollar investments in data centers, chips, and other infrastructure necessary to support AI development (link).

Investors are increasingly questioning how quickly these investments can translate into profits, especially as ongoing geopolitical tensions in the Middle East and concerns about persistent inflation are keeping borrowing costs elevated.

Last month, tech giants Alphabet GOOGL.O and Meta META.O posted results that failed to reassure investors about the return on AI spending, further accelerating the broad sell-off in AI-related stocks.

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