US stock markets experienced a sharp downturn on Thursday, with technology shares leading the decline. The tech-heavy Nasdaq Composite plunged nearly 4%, pushing it into correction territory, defined as a fall of more than 10% from its recent record high. This selloff erased much of the previous session's strong gains.
The S&P 500 also dropped 2.8%, while the Dow Jones Industrial Average lost 1,153 points, or 2.2%. The broad market retreat was primarily driven by investors moving away from artificial intelligence (AI)-linked companies, amid growing concerns about tighter regulations following the Democratic Party's significant victories in the recent US midterm elections.
AI and Semiconductor Stocks Lead Losses
Companies at the forefront of the artificial intelligence boom, particularly semiconductor manufacturers and data center operators, endured heavy selling for a second consecutive trading session. Investors are increasingly wary that Democratic control of both chambers of Congress, coupled with key state election wins, could pave the way for stricter oversight of AI infrastructure development.
- Chipmakers Nvidia and Broadcom each declined approximately 6%.
- Enterprise software giant Oracle also saw its shares fall by 6%.
- Qualcomm shares plunged 11%, despite reporting earnings that exceeded market expectations, due to a weaker-than-anticipated earnings outlook.
- The iShares Semiconductor ETF (SOXX), which tracks major chip companies, dropped 8%, indicating widespread pressure across the semiconductor industry.
Broader Tech and AI Infrastructure Firms Decline
The selling pressure extended beyond core chipmakers to other companies associated with technology and AI infrastructure:
- Elon Musk's Tesla declined 9%.
- SpaceX shares fell 7%, according to market updates.
- Neocloud companies, which specialize in providing computing infrastructure for AI applications, recorded substantial losses. CoreWeave dropped 9%, Nebius declined 13%, and Iren plunged 14%.
Investors are assessing the potential for increased regulatory scrutiny, including possible restrictions on data center expansion, electricity consumption, and the environmental impact of AI infrastructure.
Defensive Sectors Attract Investors
While technology stocks suffered significant losses, defensive sectors demonstrated notable resilience. Consumer staples gained more than 1%, and both energy and utilities stocks also advanced. This divergence suggests that investors are reallocating funds towards sectors perceived as less vulnerable to regulatory uncertainty and the inherent volatility of the technology sector.
Oil Prices Rebound Amid Geopolitical Uncertainty
Adding another layer of complexity for investors, crude oil prices reversed Wednesday's decline as geopolitical uncertainty persisted. West Texas Intermediate futures climbed more than 2% to move above $90 per barrel, while Brent crude gained over 2% to approximately $97. Oil had fallen below $90 in the previous session amidst expectations that Democrats might pressure President Donald Trump to de-escalate the Iran conflict.