The US stock market suffered a sharp sell-off on Thursday, wiping out approximately $2.5 trillion in market capitalisation in a single trading session, amid fears that Democratic victories in the US midterm elections could slow the expansion of the artificial intelligence (AI) industry.
The fallout spread across global markets, with South Korea’s benchmark Kospi index plunging nearly 9% at the opening of trading on Friday, prompting a 20-minute suspension of trading.
The technology-heavy Nasdaq Composite fell 5.52% on Thursday, entering correction territory after declining more than 10% from its record high on October 6. It marked the index’s worst single-day performance since April 2025.
The S&P 500 and Dow Jones Industrial Average also recorded their steepest daily losses since April 2025.
Investor concerns intensified following the election of Democratic candidate Gina Hinojosa as governor of Texas, a major hub for AI data centre development. Hinojosa had pledged to temporarily halt new data centre construction and scrap tax incentives for the industry.
Technology stocks bore the brunt of the sell-off. Nvidia shares plunged 9.3%, erasing their gains for the year. Shares of Elon Musk’s Tesla and SpaceX fell 11% and 9%, respectively.
The Cboe Volatility Index (VIX), widely regarded as Wall Street’s fear gauge, surged nearly 70%, marking its largest single-day increase in almost two years.
However, Keith Lerner, chief investment officer at Truist Advisory Services, described the market reaction as largely temporary rather than a reflection of concerns over how Congress would function under Democratic control.
Meanwhile, Ed Yardeni, president of Yardeni Research, viewed the AI sector’s downturn as potentially healthy for the market.
“We want to see a slowdown in the pace of AI construction,” he said, arguing that the sector had become excessively speculative and overheated.
He suggested that allowing some air to escape from the AI bubble would be preferable to an outright collapse.
Lerner also noted that the decline could reduce investment risks and create opportunities for long-term investors.
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