USTOCKS-Nasdaq set for biggest daily drop in 19 months on fears of AI regulations

The Nasdaq Composite tumbled on Thursday, on track ‌for ​its deepest one-day drop in 19 months and set to confirm it was in a correction, as chipmakers sank on fears of tougher AI regulation after Democrats won control of the US Congress. Democratic wins on Tuesday, including in states where data center ‌growth has become contentious, fueled concerns that tighter regulation could slow the AI infrastructure buildout that has helped lift stocks to record highs this year.

Nvidia dropped almost 9%, while the Philadelphia SE Semiconductor index plunged over 10%. "Investors appear to be recognizing that some newly elected members of Congress and governors are looking to slow the pace of AI infrastructure development," said ‌Melissa Brown, global head of investment decision research at SimCorp.

"While it seems unlikely that they will be able to stop it altogether, any slowdown would raise concerns ‌because the AI growth story has largely depended on the rapid buildout of supporting infrastructure." The sharp declines put the Nasdaq Composite on track for its biggest daily drop since President Donald Trump's "Liberation Day" tariff announcement in April 2025. The index was set to confirm a technical correction, or a 10% drop from its October 6 record-high close.

The Nasdaq 100 dropped 5.2%, erasing $2 trillion in market value. It confirmed a correction on Monday. While ⁠chipmakers that ​provide components for AI data centers were among ⁠the deepest decliners, other large-cap tech stocks also lost ground after rallying on Wednesday. Meta Platforms slid 4.2%, while Amazon.com fell 2.7% and Alphabet dropped 1.9%.

Data center operators IREN and Applied Digital , neoclouds CoreWeave and Nebius ⁠Group fell over 12%. AI-exposed utilities and equipment suppliers GE Vernova and Constellation Energy also dropped. Elon Musk's Tesla tumbled 12% while SpaceX dropped 8%, extending losses. Musk spent nearly half a billion dollars ​backing Republican candidates in the midterm elections.

Qualcomm dropped 10% after the chipmaker fell short of Wall Street estimates for fourth-quarter smartphone chip sales. The S&P 500 technology ⁠index fell 6.4%, and over a quarter of its components were down 10% or more on Thursday.

"This feels like the capitulation phase for the data center capex beneficiary stocks, especially the semiconductors," said Jed Ellerbroek, portfolio manager ⁠at ​Argent Capital Management. "But I think the magnitude of the moves is outsized." The S&P 500 was last down 306.05 points, or 3.98%, at 7,382.57 and the Nasdaq Composite dropped 1,313.96 points, or 5.10%, to 24,422.55.

The Dow Jones Industrial Average fell 1,672.39 points, or 3.12%, to 51,692.39. On Wednesday, the S&P 500clocked its biggest one-day percentage gain in three ⁠months, as political uncertainty eased,boosting risk appetite.

Some analysts said a divided government in Washington could lead to fewer sharp legislative changes and may make it harder to agree on ⁠fiscal spending. Cleveland Federal Reserve President Beth Hammack ⁠and Richmond Fed chief Thomas Barkin hinted at the possibility of future rate hikes in comments on Thursday.

Focus will be on the US October nonfarm payrolls data due Friday. Traders currently expect the Fed to hike rates next month following the September rate ‌hike.