Tech stocks lose $2 trillion after midterms

U.S. stock markets took a sharp hit on Thursday as investors reacted to the midterm election results.

The tech-heavy Nasdaq Composite fell more than 5% on the day. This drop erased more than $2 trillion in market value. The Dow Jones Industrial Average and the S&P 500 also declined.

The selling came two days after Democrats won overwhelming victories in national and state races. This stands in contrast to Wednesday's session, when shares rose on the relief that the fate of Congress was no longer undecided.

The market reaction stems from voter backlash against AI data centers. Many voters worry these facilities will consume excessive water and energy. Democrats won seats with promises to push back against the spread of these projects.

AI companies, including Meta and Alphabet, rely on continued expansion of data centers to develop their technology. The decline follows a rough year for tech shares, as investors have already begun questioning if massive AI investments will yield returns soon.

David Busch, chief investment officer at Trajan Wealth, noted concerns about regulation. He said there are fears of far more rules coming to AI technology, along with pushback on data center buildouts across the country.

AI-dependent stocks suffered heavy losses on Thursday. Tesla and SpaceX, both controlled by Elon Musk, fell sharply. Musk spent hundreds of millions of dollars trying to elect more Republicans. Investors now fear his companies will face Democratic scrutiny when the new Congress is seated in January.

Democrats also won key state races that could affect AI development. Gina Hinojosa won the Texas governor's race in a stunning upset. She had vowed to slow down AI expansion in her state.

The rout has left investors uncertain if losses will continue or spread beyond the tech sector. AI remains a major driver of the U.S. economy, helping the country achieve 3.4% annual growth in the July to September quarter. Average Americans also hold AI stocks through retirement portfolios like 401(k)s and pension funds, leaving them exposed to prolonged declines.

The next major test for the market will be when the new Congress is seated in January.