Tech-stock rout accelerates retreat from the AI trade

Tech stocks experienced their most significant decline since June on Thursday, with the semiconductor index plummeting by up to 11 percent, marking its worst performance since March 2020. The Nasdaq composite also saw a drop of up to 5 percent, confirming a correction of 10 percent from its peak last month. Major technology companies such as Advanced Micro, Sandisk, Micron, Dell, and Marvell Technology were among the numerous stocks that experienced double-digit losses.

This marked a continuation of a series of sell-offs in the AI sector, following a tumultuous month since the Nasdaq reached a record high on October 6.

The recent decline in AI stocks has been attributed to several factors, including reduced access to financing for data-center construction and the passage of numerous nationwide ballot initiatives. These initiatives aim to limit construction activities in the future. Some experts suggest that AI stocks have entered a private bear market, with many companies, like Apple, cutting back on AI spending due to insufficient return on investment.

AI hype, which was once widespread, is now being questioned as to whether customers will continue to pay for these products and services.

Analysts and investors are now questioning the next bullish catalyst, as the current market does not appear to have a clear answer. There is a possibility of significant policy shifts in Washington, which could create new winners and losers across sectors. The midterm elections have brought about a wave of nationwide ballot initiatives that may limit data-center construction in the coming months and years.

Political pressure is mounting to slow down AI data centers, with some states considering moratoriums on new permits. While investors anticipate workarounds, such as relocating data centers to other countries like Brazil, the lack of clarity in the aftermath of the election results means that investors are still grappling with the implications.