Wall Street peers into abyss of AI trade as midterms expose risk

Detailed summary

For months, investors have been worrying about a long list of risks to the gravy train of artificial intelligence spending. This week, they hit the panic button. Fears of the…

For months, investors have been worrying about a long list of risks to the gravy train of artificial intelligence spending.

Fears of the worst-case scenario for the AI trade kicked in after the US midterm elections on Tuesday, in which Democrats secured majorities in the Senate and House of Representatives and won control of state houses and governor’s mansions across the country. Many of the winning candidates ran on anti-AI platforms, raising the possibility that the development of data centres could grind to a halt in many places.

That realisation sent traders racing for the exits starting on Thursday, dumping shares of everything tied to the hundreds of billions of dollars in projected AI spending. The Philadelphia Stock Exchange Semiconductor Index plunged 12% while the tech-heavy Nasdaq 100 Index fell 6.4%, the biggest one-day drops for both since the Covid pandemic hit in March…

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