Democrats midterm wins rattle AI trade, wiping trillions off Nasdaq

A $2.5 trillion sell-off hit the Nasdaq on Thursday as investors dumped tech stocks over fears that Democrats’ midterm wins could lead to tighter regulation of the AI buildout. Borrowed money amplified the losses, as hedge funds facing demands for cash were forced to sell. Analyst Jamie Cox said the moves were not a sign of a crash, adding that the selling could take a few more days to run its course.

A $2.5 trillion sell-off hit the tech-heavy Nasdaq on Thursday as investors dumped tech stocks over fears that Democrats’ midterm victories could slow the artificial intelligence buildout, CNN reports.

Futures initially fell when results came in late Tuesday, but Wall Street rallied on Wednesday as investors cheered Democratic gains. By Thursday, optimism had given way to fears that Democrats could use their new leverage to impose tighter regulation. Texas Gov.-elect Gina Hinojosa campaigned on temporarily halting new data centre construction and rolling back certain tax incentives.

The sell-off was deepened by investors who borrowed heavily to bet on the boom. Hedge funds facing lender demands for more cash or collateral may have to sell stocks, pushing prices lower in a vicious cycle.

Jamie Cox, managing partner at Harris Financial Group, said: “What will happen is a day or two from now, people will realize that this isn’t the end.” He said Thursday’s moves “are not indicative of a crash or any type of impending disaster,” but reflect “companies that have gotten way over their skis and leverage.”

The hedge fund-driven selling could take a few more days to run its course.