Wall Street’s much-lauded artificial intelligence sector experienced a sharp downturn, catching investors off guard after an initial positive reaction to the US midterm elections. Attendees at the Sohn Hearts & Minds conference in Queenstown witnessed the severity of the market correction early, with the S&P 500 falling 4.4 per cent and the Nasdaq 100 dropping 6.4 per cent. The Philadelphia Semiconductor Index plunged 12.3 per cent, and Nvidia, a key player in the AI space, fell 9.3 per cent. Compounding the distress, the VIX volatility index, often dubbed the ‘fear index’, surged a remarkable 70 per cent in a single session, signalling widespread panic.
This dramatic reversal followed an initial market rally, where investors had anticipated historical patterns of post-midterm gains. However, something snapped, driven by mounting fears that the Democratic Party’s strong election performance could unleash a wave of AI regulation across the US. Concerns escalated following a declaration from Arizona Democratic congresswoman Yassamin Ansari, who publicly called for a pause on advanced AI development and stricter industry oversight. While some investors argue these fears are overblown, citing the economic importance of AI and potential legislative hurdles, the market reacted swiftly to the perceived threat.
The sell-off broadly impacted the AI ecosystem. Chip stocks, including Micron Technologies and SanDisk, saw significant losses, while ‘picks and shovels’ providers like GE Vernova and Bloom Energy also declined. Neocloud data centre operators, such as Coreweave and Australian-born Iren, were particularly hard hit, with Coreweave crashing a further 8 per cent to be down 50 per cent in a month, and Iren shedding 15 per cent, bringing its monthly loss to 54 per cent. This turbulence comes as experts, such as Vantage Point Asset Management’s Nick Ferres, note pre-existing risks within the AI trade, including questions about return on investment and excessive debt financing the boom, suggesting a potential shift from ‘boom’ to ‘bust’.
