AI storm dooms tech stocks to US$2 trillion decline on darkest day since 2025

Big tech stocks experienced their largest decline in more than two years on Thursday, marking the greatest drop since the infamous "Liberation Day" sell-off last year. The Nasdaq 100 index faced potential losses exceeding US$2 trillion, as investors grew apprehensive about the potential impact of the Democratic Party's sweeping midterm victory on AI infrastructure expansion.

Analysts and portfolio managers attributed the decline to financing concerns surrounding neoclouds, smaller infrastructure firms like Nebius and CoreWeave, which have already faced funding limitations due to higher interest rates and tighter financial conditions.

Semiconductor and neocloud companies, particularly Nvidia and Advanced Micro, witnessed the steepest declines, with shares falling 9% and 15%, respectively. The Philadelphia SE Semiconductor index plummeted as much as 11.2%, its lowest level in over six months. Nvidia and Advanced Micro were not the only casualties; Amazon.com and Alphabet also experienced declines, with Amazon dropping 2.5% and Alphabet 2%, respectively.

This sell-off suggests that investors may be starting to account for the potential challenges of data center buildouts, which have strained US communities with costs such as strained power grids and water systems.

The political landscape is adding to the AI trade's precarious position due to concerns over the return on investment for significant funds poured into the technology. CoreWeave and Nebius, both neocloud companies, saw shares slip 10% and 15%, respectively. Their five-year credit default spreads reached record highs, indicating heightened market expectations of potential defaults. The sharp declines have pushed the Nasdaq Composite on the verge of entering correction territory, defined as a 10% drop from its recent peak.

This tumultuous period for AI-related stocks underscores the uncertainty surrounding the technology's long-term prospects. Despite the transformative potential of AI, the market is grappling with the realization that not every AI-related stock is currently priced appropriately, leading to a period of turmoil.