Democrats now control both houses of Congress, and the fight over how to regulate artificial intelligence sits at the centre of a global market rout. A sweeping midterm victory for the party, including wins in key states caught up in the AI data centre race, has prompted investors to reassess the regulatory outlook for the tech sector.
The sell-off was enormous. Trillions of dollars came off stock values before a Friday rebound, with investors having dumped tech shares in part on concerns that the Democrat win would mean slower AI development. Several Democrats campaigned on new rules for AI and data centres, and the party has since taken control of Congress as well as those state contests. Shares in AI and technology firms were climbing again on Friday.
President Donald Trump weighed in the same day, reiterating his support for what he calls “super intelligence” and saying only “foolish leadership” would “say no to the riches they bring”. His intervention came as the incoming Congress prepares, in the words of one commentator, to focus on the sector “in a very dramatic way”.
Russ Shaw, founder of the global tech advocacy firm Tech London Advocates, told the BBC’s Business Today that the election result was sending a message that a rethink on AI was needed. “I’m a big fan of AI, but I’m watching what these companies are doing, and they’re not communicating effectively at all, particularly in the US, about what the benefits of AI are all about,” he said. He added that people were watching firms come into their communities and build data centres while their own energy costs went up, and that those companies “have to be better neighbours”.
The turmoil began in the US on Thursday, then spilled into Asian and European markets on Friday. Businesses closely linked to AI development took a hammering on Thursday, particularly chip and semiconductor makers. By contrast, the tech-heavy Nasdaq Composite bounced back on Friday, up 1.4% and reversing some of its 5.5% fall. The S&P 500, which tracks the largest publicly-traded US companies, was up about 0.7%, while the Dow Jones Industrial Average was flat through the day.
Individual firms swung sharply. Nvidia shed hundreds of billions in market value on Thursday after shares slid more than 9%, but recovered some losses on Friday, trading up more than 3%. SpaceX and Tesla, also hammered on Thursday, saw gains of more than 8% and nearly 5% respectively. Chipmakers AMD and Micron both dropped by more than 17% on Thursday; on Friday AMD shares had risen about 10% and Micron was up more than 5%.
Markets in Asia and Europe fared worse. The Kospi in South Korea closed down 6%, with shares in chipmaker SK Hynix plunging more than 10%. European indexes in Germany, France and Spain all ended the day down, and the UK’s FTSE 100 declined 1.01%. UK traders were also digesting the latest Bank of England decision to raise interest rates, along with the signal that another rise could be on the cards to curb rising prices.
Reference coverage of the sell-off and recovery can be found at https://www.bbc.co.uk/news/articles/c35ynnpzdq51o
Meanwhile, the latest US employment figures added to a mixed picture on Friday morning. Employers added 165,000 new jobs, well above the average monthly increase and more than double what analysts had expected, while the unemployment rate eased slightly to 4.1% from 4.2%. The Bureau of Labor Statistics said the rate has remained in the narrow range of 4.1% to 4.3% since March. Neil Birrell, chief investment officer at Premier Miton, said that while the jobs figures may feel like second billing to the market movements, they were still important. “The US economy is running hard which may mean the risks the markets are worrying about at the moment are not such a risk to the real economy as is being feared,” he said.
Dan Coatsworth, head of markets at AJ Bell, described a brutal week and said the key question was whether the jump in the S&P 500 and Nasdaq would be sustained. “While no-one knows what happens next, it’s clear that we’ve just seen a significant shift in market sentiment,” he said. “Once investors have had the weekend to catch their breath, next week could give a clearer indication of whether the tech trade is going down the pan or fighting back.”
Whether the incoming Congress turns that rhetorical focus on AI into actual rules, and how markets price the regulatory risk in response, is the question hanging over the week ahead.