Investors wipe $2.5 trillion off Nasdaq as blue tsunami prompts AI fears

It was the second straight day of selling in AI stocks and the fifth decline of more than 500 points in the Nasdaq Composite (. IXIC) since mid-October, as the previously buoyant AI trade has come under increasing scrutiny in the last several weeks.

"The big election outcome was, ​especially with the Democrats winning a lot of the governorships, that the slowdown of the data center buildout is the real key theme that's going to stick," said Michael O'Rourke, chief market ​strategist at Jones. Trading in Stamford, Connecticut.

The Nasdaq Composite is now in correction territory, having lost nearly 12% from its record close on October 6. A correction ⁠is defined as a 10% drop from a recent peak. Many analysts said the scale of the declines suggests further selling is at hand, likely starting with Friday's market sessions in Asia.

Japan's Nikkei (. N225) and South ​Korea's Kospi (. KS11) have risen more than 20% this year, but they fell significantly following Wednesday's rout in data center shares.

Some analysts wondered if the scale of the wipeout could affect the timing of Anthropic's blockbuster IPO ​expected this fall, as any delay could amplify market sentiment.

Analysts and portfolio managers said declines in once-hot areas such as semiconductors and AI infrastructure weren't entirely surprising, given the scale of earlier gains in many stocks and the financing concerns that have shadowed neocloud firms such as Nebius (NBIS.O) and Core. Weave (CRWV.O) since US interest rates climbed late in the summer.

Chip and neocloud shares posted the most significant declines on Thursday, reflecting worries that data center buildouts worth billions of dollars could face ​delays. The Philadelphia SE Semiconductor index (. SOX) fell 12% to touch its lowest level in more than six months.

Nvidia (NVDA.O) dropped 9% and Advanced Micro (AMD.O) tab slumped 17%. Wall Street's fear gauge, the VIX index of expected price ​swings, posted its largest increase since December 2024. LOSING BIG IN A ONCE-HOT SECTORHyperscalers, which defied Wednesday's AI selloff, also dropped.

Amazon.com (AMZN.O) and Alphabet (GOOGL.O) each slid 2.2%. The Nasdaq 100 index, composed of the biggest names in the broader index, ‌fell 6.4%, ⁠erasing $2.5 trillion in market value.

The selling suggests investors are starting to factor in increased local opposition to the data center buildout, with some analysts saying markets have yet to fully consider the costs it has imposed on US communities.

"There's going to be a lot of pushback about those data centers being geographically located in someone's backyard, straining the power grid, straining the water systems," said Bruce Zaro, managing director at Granite Wealth Management in Plymouth, Massachusetts. "Although there are a number of data centers already approved, there are still a lot to be permitted.

There's going to be a difficult road to get those permitted forthcoming. "Around 30% of expected ​US data center capacity additions in 2028 could be ​at risk from potential construction pauses, UBS analysts ⁠estimated, threatening an industry whose growth depends on a rapid buildout of new facilities.

The political jitters are hitting an AI trade already on shaky footing due to worries about the return on investment for the enormous sums being poured into the technology. AI WINNERS WILTNeocloud company Core. Weave (CRWV.O), which has become a barometer of investor ​anxiety over heavy AI spending and borrowing, slumped 10%.

Its 5-year credit default swap spreads, which measure market expectations of a potential default, widened to ​a record 1,267.9 basis points, ⁠&P Global Market Intelligence data. Spreads on Intel's (INTC.O), 5-year credit default swaps also hit a record 149.7 bps.

Nebius (NBIS.O), another neocloud company, dropped 15%. Shares of both firms have dropped by half or more since the Nasdaq Composite hit a record on October 6. "The market's moving from the promise of AI to the price of AI," said Ted Parkhill, founder and CEO of Incline Investment Management.

"There's no question that AI is going to be transformative for ⁠the world ​in the long run. But that doesn't mean every AI-related stock is currently priced appropriately. There's going to be a lot ​of turmoil.

"Data center operators Applied Digital (APLD.O), Cipher Digital (CIFR.O), and IREN (IREN.O) tumbled more than 14% each. The weakness extended to utilities and equipment suppliers exposed to the buildout. GE Vernova (GEV.N) fell 7.4%, while Constellation Energy (CEG.O) slipped 2.5%.

Microsoft (MSFT.O) declined 3.6%. The company is tightening oversight of some ​data center projects from Nebius, IREN and Nscale, Bloomberg News reported.