Updated Version 8 - "Blue Tsunami" Causes Nasdaq Market Cap to Evaporate by $2.5 Trillion, Investors Concerned About AI Trading

Updated closing prices, added background information in paragraphs 3-5, provided more detail on credit default swaps in paragraph 15, and updated the first paragraph, the key points list, and the headline.

Niket Nishant/Caroline Valetkevitch

Reuters, November 5 - On Thursday, a sweeping Democratic victory in congressional elections hit U.S. stocks hard, sending the tech-heavy Nasdaq index to its biggest one-day loss since “Liberation Day” in April 2025. As the market fears more AI regulation—especially regarding data center construction—trillions in market value were wiped out.

The Nasdaq Composite Index fell 5.5% as investors worried that the Democrats’ decisive win in the midterms (link) could impede the expansion of AI infrastructure and force smaller companies—already constrained by higher rates and tighter financial conditions—to face harsh challenges.

This marks the second consecutive day of heavy selling in AI shares, and the fifth time since mid-October that the Nasdaq Composite Index .IXIC has dropped more than 500 points, as the once high-flying AI sector has come under increasing scrutiny in recent weeks.

“One of the major takeaways from this election—especially with Democrats winning so many governorships—is that a slowdown in data center construction is going to be a core, persistent theme,” said JonesTrading Chief Market Strategist Michael O'Rourke in Stamford, Connecticut.

The Nasdaq Composite is now in correction territory, down nearly 12% from its record close on October 6. A correction is defined as a drop of 10% or more from a recent high.

Many analysts said the sharpness of the sell-off signals further selling could be on the horizon, likely beginning with Friday’s Asian session. Both Japan’s Nikkei .N225 and South Korea’s Kospi .KS11 are up over 20% this year, but suffered steep losses after a sharp sell-off in data center stocks on Wednesday.

Some analysts questioned whether the magnitude of the plunge would impact the timing of Anthropic’s highly anticipated IPO scheduled for this fall, as any delays could further sour market sentiment.

Analysts and portfolio managers said that given the outsized gains in many stocks, and financing concerns for new cloud firms like Nebius (NBIS.O) and CoreWeave (CRWV.O) since the end of summer U.S. rate hikes, declines in once-hot areas such as semiconductors and AI infrastructure are not entirely surprising.

On Thursday, chip and new cloud-related stocks saw the steepest drops, reflecting market concerns that multi-billion dollar data center construction projects could face delays. The Philadelphia Stock Exchange Semiconductor Index .SOX slumped 12%, hitting its lowest level in more than six months. Nvidia NVDA.O dropped 9% and Advanced Micro Devices AMD.O plunged 17%.

Wall Street’s “fear index”—the VIX, which measures expected price swings—posted its biggest rise since December 2024.

Once-hot sectors hit hard

Previously, the mega-cap tech companies that had gained during Wednesday’s AI stock rout also declined. Amazon.com AMZN.O and Alphabet GOOGL.O both fell 2.2%. The Nasdaq-100, made up of the largest Nasdaq Composite companies, dropped 6.4%—wiping out $2.5 trillion in market value.

The sell-off signals that investors are now weighing growing local opposition to data center expansion—something some analysts say the market has not fully factored in when evaluating costs to U.S. communities.

“These data centers are being sited in people’s backyards, putting stress on the power grid and water supply, so there’s bound to be heavy opposition,” said Bruce Zaro, managing director at Granite Wealth Management in Plymouth, Massachusetts. “Although a number of data centers have been approved, there are still many projects pending. Going forward, getting these permits will be extremely difficult.”

UBS analysts estimate that about 30% of additional U.S. data center capacity anticipated through 2028 could be at risk from potential construction pauses, threatening an industry whose growth depends on rapid new facility buildout.

Political upheaval is hitting an already fragile AI sector—which has been roiled as investors question whether hefty investments in the technology will pay off.

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AI winners lose their shine

Neocloud company CoreWeave (CRWV.O) has become a barometer for investor concerns about massive AI spending and leverage, with shares plunging 10%. According to S&P Global Market Intelligence, the spread on its 5-year credit default swap—an indicator of perceived default risk (CRWV5YUSAX=MG)—widened to a record 1,267.9 basis points.

Intel’s (INTC.O) 5-year credit default swap (INTC5YUSAX=MG) also hit a record-high spread at 149.7 basis points.

Another new cloud company, Nebius (NBIS.O), slumped 15%. Since the Nasdaq Composite hit a record high on October 6, both companies’ shares have dropped by half or more.

“The market is shifting its focus from AI excitement to AI valuations,” said Ted Parkhill, founder and CEO at Incline Investment Management.

“No doubt, AI will transform the world over the long term. But that doesn’t mean every AI-related stock is rightly valued right now. There will be massive shakeouts in the market’s future.”

Data center operators Applied Digital (APLD.O), Cipher Digital (CIFR.O), and IREN (IREN.O) all tumbled more than 14%.

The downturn also spread to utilities and equipment suppliers impacted by data center construction. GE Vernova (GEV.N) fell 7.4%, while Constellation Energy (CEG.O) lost 2.5%.

Microsoft MSFT.O dropped 3.6%. According to Bloomberg, the company is tightening oversight of some data center projects with Nebius, IREN, and Nscale.

(For the convenience of non-English speakers, Reuters automates translation of its reporting into several other languages. Automated translation may contain errors or lack necessary context, and Reuters does not guarantee the accuracy of automated translations. These are provided solely for reader convenience. Reuters bears no responsibility for any harm or loss arising from use of the automated translation feature.)