Nasdaq sheds $2.5 Trillion as s AI fears hit tech stocks

The global artificial intelligence (AI) investment boom faced a major reality check after US technology stocks suffered a sharp sell-off, wiping out $2.5 trillion in market value from the Nasdaq 100 index. A sweeping victory for the Democratic Party in the US midterm elections has raised concerns over tighter scrutiny of AI infrastructure expansion, particularly the construction of massive data centres, triggering fresh uncertainty over the sector's growth prospects.
The tech-heavy Nasdaq Composite plunged 5.5%, marking its steepest single-day decline since US President Donald Trump's 'Liberation Day' tariff announcements in April 2025. The index has fallen nearly 12% from its record closing level on Friday,6 October, entering correction territory.Investors fear that the Democrats' strong electoral performance could lead to greater opposition to data centre projects and tighter scrutiny of AI infrastructure expansion. Rising financial and environmental concerns are also raising questions about the sustainability of massive investments in the sector.
"The big election outcome was, especially with the Democrats winning a lot of the governorships, that the slowdown of the data centre buildout is the real key theme that's going to stick," said Michael O'Rourke, chief market strategist at JonesTrading.
According to agency reports,semiconductor companies and AI infrastructure providers suffered major losses. The Philadelphia Semiconductor Index plunged 12%, its lowest level in more than six months. Nvidia fell 9%, while Advanced Micro Devices (AMD) tumbled 17%.Among AI-focused companies, Nebius declined 15% and CoreWeave lost 10%. Data centre operators Applied Digital, Cipher Digital and IREN also dropped more than 14% each. Microsoft fell 3.6%, while Amazon and Alphabet declined 2.2% each.
The Nasdaq 100 dropped 6.4%, wiping out approximately $2.5 trillion in market value. Meanwhile, Wall Street's fear gauge, the CBOE Volatility Index (VIX), recorded its biggest single-day increase since December 2024.
Investors are also concerned about growing opposition to data centre construction due to its heavy electricity and water requirements. Pressure on local resources and power grids could delay approvals and affect expansion plans."There's going to be a lot of pushback about those data centres being geographically located in someone's backyard, straining the power grid, straining the water systems," said Bruce Zaro, managing director at Granite Wealth Management.UBS analysts estimated that nearly 30% of expected US data centre capacity additions in 2028 could be at risk from potential construction pauses.
Financial pressures are adding to the concerns, particularly for smaller AI infrastructure companies dependent on borrowing. CoreWeave's five-year credit default swap spreads, which indicate perceived default risk, widened to a record 1,267.9 basis points, according to S&P Global Market Intelligence. Intel's corresponding spreads also touched a record 149.7 basis points."The market's moving from the promise of AI to the price of AI," said Ted Parkhill, founder and CEO of Incline Investment Management.He noted that although AI could transform industries over the long term, not every AI-related stock is appropriately valued, leaving room for further market volatility.
The sell-off has also raised questions about the timing and investor demand for Anthropic's much-anticipated IPO, expected this autumn. A prolonged technology market downturn could affect its listing plans and valuations across the AI sector.The latest correction signals a shift in investor focus from AI's growth potential to the actual returns on massive investments. While the long-term outlook for AI remains strong, companies may increasingly face review over their funding requirements, expansion plans and ability to deliver profits, noted experts.