Stocks are cratering as the AI trade's post-election honeymoon ends

• AI stocks are in freefall as post-election euphoria fades and data center fears surge.
• The blue wave has sparked worries about tighter data center regulation, which could slow AI capex.
• Investors are anxious about whether the economy & bull market will hold up if investment pulls back.

Investors' post-election euphoria lasted just one day before fears about the AI trade came roaring into view.

Democrats' sweeping victories on Tuesday sparked a monster postelection rally, but US stocks are now getting pummeled by worries that the blue wave will usher in a new era of tighter regulation for data centers and AI development, with cascading effects for the bull market and broader economic growth.

Here's where US indexes stood shortly at 11 a.m. ET on Thursday:

• S&P 500: 7,439.37, down 3.2%
• Dow Jones Industrial Average: 52,167.50, down 2.23% (-1188.62 points)
• Nasdaq 100: 26,853.18, down 5%

At the forefront of investors' anxieties is the idea that newly elected Democrats at the state and federal level will tighten the reins on data center construction, slowing AI capex at a time when investment spending is still powering a significant portion of economic growth and the yearslong bull market in tech stocks.

AI stocks plummeted on Thursday, extending yesterday's declines for infrastructure firms like CoreWeave and chip makers like Nvidia. But whereas some AI-linked names such as hyperscalers gained, the rout on Thursday battered the AI trade broadly.

The most painful losses were in neoclouds, memory and chip stocks, and data center operators.

All three benchmark indexes tumbled into the red. The Dow, which logged its best day on Wednesday since the post-Liberation Day stock rally in 2025, dropped more than 1,000 points, while the Nasdaq 100 plunged 5%. The tech-heavy index is now down 13% from its latest high and officially in a correction.

Here were the most notable moves in the tech sector:

Thursday's decline erased most of the gains logged on Wednesday, when investors piled into hyperscalers on optimism that AI capex will slow, which would be a positive for these companies' financials. The logic today, though, seems to be driven by a broader risk-off move, with investors looking to reduce exposure to the AI sector amid data center uncertainty. Traders have also been eager to take profits lately, punishing various hyperscalers after quarterly earnings even when firms beat on the bottom line and signaled greater spending discipline heading into 2027.

In a note, analysts at Jefferies called Democratic Sweep a "Worst-Case Near-Term Scenario" for the AI trade, pointing to the potential for tighter data center regulation. The firm also revised its outlook for data center capacity through the end of the decade downward.

Meta President Dina Powell McCormick also flagged greater difficulties firms would face going forward to build new data centers, adding to investor anxiety.

"What I mean by that is to start new data center build-outs today in the United States will be very challenging," McCormick said, speaking at the Wall Street Journal Tech conference in California on Wednesday. Meta has emerged as one of the largest players in the data center space, with construction on its $50 billion Hyperion data center in Louisiana and its $14 billion Texas data center underway.

Investors are also wrestling with anxiety about what will happen to the US economy and bull market if investment slows. The market has been increasingly aware that AI is accounting for a growing share of US growth. Data center construction, for instance, was one of the only areas of construction spending that grew in September, soaring 80% while spending in most other sectors declined, according to an analysis from Harvard economist Jason Furman.

"Will the shift in Congress actually slow tech down? If yes (as many assume, though I'm less sure), can the rest of the market and economy thrive without the shield of tech earnings and spending?" top economist Mohamed El-Erian wrote on LinkedIn.

The AI infrastructure portion of the market looks like it's facing a "reality check," top economist David Rosenberg wrote in a note to clients on Thursday.

"The question becomes the economic impact as we see, at the least, a pause in the data center construction mania," he added.

It's been a volatile week for markets, with investors also slogging through Big Tech earnings and key economic data releases. All eyes will be on the October jobs report coming out Friday, which is expected to shape the Fed's path for future rate hikes heading into 2027.

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