U.S. stocks plummet as midterm election results spark anxiety over artificial intelligence regulation

After the Democratic Party's victory in the U.S. midterm elections, investors worried that the artificial intelligence industry may face stricter regulations, and concerns about the industry's own weaknesses resurfaced. U.S. stocks suffered their worst one-day decline in the past two years.

On Thursday, the S&P 500 fell 4.4%, its biggest one-day drop since April 2025. At that time, President Trump announced massive tariffs around the world.

The tech-heavy Nasdaq Composite Index fell 5.5%, entering correction territory, which means it is down at least 10% from its recent highs. The Philadelphia Semiconductor Index, a benchmark for the semiconductor industry, plunged more than 12%. The index has fallen more than 30% since the beginning of October and is down nearly 40% from its peak in June.

Markets initially rose on Wednesday after Democrats won majorities in the House and Senate. Investors are generally happy to see political gridlock in Washington because it means the government is less likely to introduce new laws and regulations and strengthen corporate supervision.

But by Thursday morning, markets were beginning to worry that the midterm elections could usher in a period of greater scrutiny of the artificial intelligence industry, adding to weeks of worries about out-of-control spending and rising debt at technology companies.

Some analysts have pointed out that Democrats have captured governorships in several states that are emerging as important data center hubs, which may pose a substantial obstacle to the construction of artificial intelligence infrastructure.

The stock market's decline intensified that day, with all sectors of the S&P 500 index not spared. The plunge in stock prices came as prices for the 10-year U.S. Treasury note, seen as a safe haven in times of market turmoil, rose, sending the yield down to 4.83%, the lowest level since September.

Gene Goldman, chief investment officer at Cetera Financial Group, said the market decline was "overdone" as the sell-off accelerated throughout the day. He expects the stock market to rebound.

"Retracements in bull markets usually don't last long," he said. "It's really ugly right now, but we do think the market will rebound soon."

Thursday's decline reignited a sell-off that had been paused in the run-up to the election. Last week, when tech giants like Meta and Amazon reported quarterly results and revealed huge artificial intelligence spending plans, they triggered an even fiercer sell-off. Investors are increasingly worried about how long it will take for these investments to translate into profit growth.

Some of the biggest decliners on Thursday came from chipmakers. Shares of major chipmaker Qualcomm fell 9.5% on Thursday. Previously, the company lowered its profit forecast, saying that strong demand for chips was causing its own costs to rise faster than its ability to raise prices. The plunge in Qualcomm's stock price also reflects broader market concerns: Supply bottlenecks caused by the rush to build artificial intelligence infrastructure may slow down the growth of the entire industry, thereby extending the time it takes for investors to reap returns from their artificial intelligence investments.

Another chipmaker, ARM Holdings, fell 13.1% as its business revenue from entering the field of artificial intelligence fell short of expectations.

Chip industry leader Nvidia fell 9.3%, wiping out its cumulative gains this year and turning into a decline.

Shares of Elon Musk's Tesla and SpaceX fell sharply for a second day in a row. Both companies are run by Musk, the world's richest man and a huge Republican donor. Both companies have come under extra close scrutiny following the election and could face investigations and greater regulatory scrutiny in the future.

Compared with the overall market, large "hyperscale cloud computing service providers" such as Alphabet and Microsoft saw smaller share price declines on Thursday. Some analysts believe that a slowdown in the race to build artificial intelligence infrastructure could benefit these large, well-established companies, both by cementing their dominance and by slowing the rapid spending growth that has previously put them under pressure.

"The basic logic here is that a slowdown in construction may be relatively good for companies that spend money to invest, but not necessarily good for companies that receive investment money," said Frank Flatt, head of macro strategy at Citadel Securities.

Analysts generally remain optimistic about the outlook for the stock market and expect the major indexes to rebound once the current volatility subsides, although some believe the market's volatility could continue into the end of the year.