AI, data-center stocks slump as Democratic sweep clouds expansion plans

AI and data center-linked stocks tumbled ​on Thursday as Democrats' sweeping US ​midterm victory fueled concerns about potential hurdles ‌to ​the industry's rapid expansion. Neocloud stocks, which have become a barometer of investor anxiety over heavy AI spending, fell, with CoreWeave and Nebius slumping 11% and ‌15%, respectively.

Chipmakers also slid. The Philadelphia SE Semiconductor index dropped 8%, touching its lowest in more than six months, dragged down by losses in heavyweights Nvidia and Broadcom. The sharp losses put the tech-heavy Nasdaq on course to ‌confirm a correction, or a 10% drop from its recent peak.

Investors worry Democratic control of ‌Congress could bring tougher scrutiny of the data-center industry, potentially slowing development at a time when public opposition to new facilities is already mounting. Around 30% of expected US data center capacity additions in 2028 could be at risk from potential construction pauses, ⁠UBS analysts ​estimated, highlighting the threat ⁠to an industry whose growth depends on a rapid build out of new facilities.

The political uncertainty adds to pressure on ⁠the broader AI trade, as investors increasingly question whether the enormous capital spending required to build AI infrastructure will generate sufficient ​returns. "The market's moving from the promise of AI to the price of AI," said Ted ⁠Parkhill, founder and CEO of Incline Investment Management.

"There's no question that AI is going to be transformative for the world in the ⁠long ​run. But that doesn't mean every AI-related stock is currently priced appropriately. There's going to be a lot of turmoil." Data-center operators Applied Digital, Cipher Digital and IREN tumbled more than 15%.

The weakness extended ⁠to utilities and equipment suppliers exposed to the buildout. GE Vernova fell 7%, while Constellation Energy slipped 4.3%. Hyperscalers, ⁠which defied the ⁠selloff on Wednesday on bets that slower data-center construction could rein in Big Tech's AI spending, also dropped.

Amazon.com fell 3.3% and Alphabet shed 1.5%. Separately, Qualcomm plunged 9% ‌after quarterly smartphone-chip sales ‌missed Wall Street estimates.