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 against future gains following broad Democratic victories in the midterms.
By midday, tech-focused Nasdaq 100 rose 1.9% after plunging 6.3% Thursday, its worst single-day performance since the Covid-19 pandemic.
The broader S&P 500 was nearly 1% higher after tanking 4.4% Thursday, wiping out $2.8 trillion in paper wealth.
Investors continue to digest the results of Tuesday’s midterms that swept a crop of anti-AI and data center opponent politicians into office, including Gov.-elect Gina Hinojosa in Texas, among the largest data center markets in the country. The AI boom has comprised an ever-increasing share of stock gains and economic growth writ-large, making markets increasingly susceptible to any threat to the narrative.
“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 in emailed comments.
The newly Democrat-controlled Congress could also tighten scrutiny of the industry, including AI infrastructure projects, which could cause delays and additional costs, adding to worries investors have about the profitability of these investments.
Some analysts viewed Thursday’s dramatic sell-off as overblown — or at least, merely a sign of some froth coming off an overstretched market rather than the end of the line for the AI investment wave.
In a note to clients Friday, economist and longtime market watcher Ed Yardeni called recent declines “just speed bumps” that may be helping prevent the AI bubble from over-inflating, and that buying opportunities may already be preventing themselves.
Still, he acknowledged risks remain, namely the extent to which AI data centers get delayed or canceled outright.
Volatility is likely to continue until it becomes clearer how much data center construction is truly threatened by newly elected lawmakers.
“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,” Alex Guiliano, chief investment officer at New Jersey-based Resonate Wealth Partners, said in a statement.