Democratic midterm wins trigger $2 trillion tech selloff

Tech shares lost more than $2 trillion in market value on Thursday as investors priced in the likelihood of new regulations on artificial intelligence.

The sell-off followed the November midterm elections, in which Democrats secured sweeping victories in both national and state races. The market had initially rallied on Wednesday, driven by relief that the composition of Congress was no longer in doubt. By Thursday, the focus shifted to the policy implications of that outcome.

Voters signaled strong opposition to the expansion of AI data centers, which many residents worry will strain local water and energy supplies. The incoming Democratic majority has vowed to push back against this buildout. This sentiment weighed heavily on companies that rely on continued infrastructure growth to advance their technology.

David Busch, chief investment officer at Trajan Wealth, noted the specific fears driving the decline. "There is some concern regarding AI regulation, and fears that there could be far more regulations coming to AI technology, as well as a pushback on the buildout of data centers across the country," he said.

Stocks tied to Elon Musk experienced the sharpest drops. Tesla and SpaceX, both controlled by the billionaire, fell particularly hard. Musk spent hundreds of millions of dollars trying to elect more Republicans. With that effort unsuccessful, investors worry that a Democratic Congress will scrutinize his companies more closely when they convene in January.

State-level results added to the regulatory pressure. Democrats who campaigned on slowing AI development won key races. Gina Hinojosa won the Texas governor's race in a stunning upset, gaining control of a state with a large tech sector. This state-level shift compounds the potential for federal legislative action.

The Nasdaq closed down more than 5%, joining the Dow Jones and S&P 500 in the decline. The rout extends a difficult year for technology stocks, as investors question whether massive AI investments will yield returns. AI contributed to a 3.4% annual growth rate for the U.S. economy in the July to September quarter. Average Americans also hold exposure to these companies through 401(k) plans and pension funds, leaving their retirement portfolios vulnerable to further declines.