AI stocks tumble as US midterm results fuel data centre concerns

US tech stocks plummeted Thursday as investors grappled with the implications of Democrats' sweeping victory in the US midterms, particularly regarding AI spending and data centre projects. The Nasdaq futures fell more than 1%, reflecting renewed concerns over the AI boom. Meanwhile, broader markets rallied, and oil prices dropped after Republican Donald Trump's party suffered a historic defeat, largely attributed to high prices, tariffs, and the Iran war.

The result raised hopes that Trump might seek to de-escalate the Middle East conflict, potentially easing inflation and softening his stance on trade. However, AI-linked firms faced pressure due to worries about planned data centre construction and increased scrutiny from newly installed Democrats on Capitol Hill. The sector had already been under pressure due to concerns about substantial investments in data centers, research and development, and chip development, as well as uncertainty about profitability.

Saxo Markets analyst Charu Chanana stated that the vote was accelerating a reassessment of AI, with three main risks identified: more oversight, data centre restrictions, and capital spending uncertainty. Though the congressional scrutiny could accelerate demands for AI safety standards, independent model evaluations, and greater accountability for data centre developers, Chanana emphasized that it was not an outright anti-AI policy agenda.

Strategically important for US competitiveness, particularly against China, AI still enjoys bipartisan interest in maintaining American leadership. Chip firms experienced significant losses in Asia, with SK hynix falling over 7% and Samsung 5.5% down. Tokyo-listed Kioxia and Advantest dropped more than 13% and 14.7%, respectively, while Tokyo Electron declined over 9% and SoftBank 6.8%.

However, broader markets showed resilience, with investors rotating into other sectors such as finance, auto, mining, and manufacturing. Asian tech giants like Alibaba, JD.com, and Tencent gained ground amid hopes for an easing of trade tensions between the US and China. Shanghai, Sydney, Singapore, Wellington, Mumbai, Jakarta, and Manila also experienced gains.

Lower oil prices, driven by optimism that Trump might seek a deal to end the Iran war, helped temper inflation concerns and Treasury yields, benefiting the dollar.