Tech stocks in the U.S. steadied Friday after suffering one of their worst routs in years, as investors weighed the prospect of an AI investment slowdown resulting from Democratic midterm victories against the sector’s long-term growth potential.
The tech-focused Nasdaq 100 closed up 1.1% after plunging 6.3% on Thursday, its worst single-day performance since the Covid-19 pandemic.
The broader S&P 500 finished 0.3% higher, after tanking 4.4% Thursday, a drop that wiped out $2.8 trillion worth of wealth on paper.
A strong October jobs report Friday morning increased the odds that the Federal Reserve will raise interest rates at its next policy meeting in December. The prospect of higher borrowing costs helped to push stocks down from their highs earlier in the day.
Investors continue to digest the results of Tuesday’s midterm elections, in which a crop of Democratic candidates were elected to office who had pledged to rein in AI and data centers. They include Gov.-elect Gina Hinojosa of Texas, a state that is among the largest data center markets in the country.
The AI boom is responsible for an ever-increasing share of U.S. stock market gains and economic growth, so any threat to the narrative of demand-fueled growth can rattle investors.
“Markets are being punished according to their dependence on the U.S. AI infrastructure cycle,” Charu Chanana, chief investment strategist at Singapore-based SAXO Markets, told NBC News.
The incoming Democratic-controlled Congress could also tighten scrutiny of the AI industry, including its infrastructure projects, which could cause delays and additional costs.
This would add to existing worries investors already have about the long-term profitability of these investments.
Some analysts viewed Thursday’s dramatic sell-off as overblown — merely a sign of some froth coming off an overstretched market — rather than the end of the line for the AI investment boom.
Recent declines are “just speed bumps,” said economist and investor Ed Yardeni.
Rather than spelling doom for the sector, Yardeni said losses like this week’s could ultimately help keep the AI bubble from overheating.
Until it becomes clearer how much data center construction is truly threatened by newly elected lawmakers, volatility is likely to continue.
“This is a stock market that is trying to figure out the right valuations for the AI trade, which is grappling with a swift sentiment shift after the midterm elections,” said Alex Guiliano, chief investment officer at New Jersey-based Resonate Wealth Partners.
