Tech stocks lose $2 trillion post midterms

The tech-heavy Nasdaq Composite fell more than 5% on Thursday, wiping out over $2 trillion in market value. The Dow Jones Industrial Average and the S&P 500 also declined. This sharp drop occurred two days after Democrats secured sweeping victories in national and state midterm elections.

The market reversal followed Wednesday's rally, when investors had bought shares in relief that the control of Congress was no longer undecided. On Thursday, traders priced in the political signal sent by voters who rejected the rapid expansion of AI data centers. Many residents expressed concern that these facilities would consume excessive water and energy resources.

David Busch, chief investment officer of Trajan Wealth, noted the shift in sentiment. "There is some concern regarding AI regulation, and fears that there could be far more regulations coming to AI technology, as well as a pushback on the buildout of data centers across the country," Busch said. He added that investors are worried about the incoming legislative agenda.

Elon Musk's companies took a particularly heavy hit. Tesla and SpaceX, both under Musk's control, saw their shares fall sharply. Musk spent hundreds of millions of dollars in a failed effort to elect more Republicans to Congress. Investors now anticipate that his companies may face increased scrutiny when the new Democratic-led Congress convenes in January.

The pressure on the tech sector extends beyond federal politics. Democrats who pledged to slow AI development won key state races. Most notably, Gina Hinojosa won the Texas governor's race in a stunning upset. State-level regulations could further constrain the industry's growth.

This decline follows a difficult year for technology stocks. Investors have increasingly questioned whether massive corporate investments in AI will yield near-term returns. The sector has become a major engine of the U.S. economy, contributing to a 3.4% annual growth rate in the July to September quarter.

Average Americans face exposure to these losses through retirement accounts. Many 401(k)s and pension funds hold large positions in AI-dependent companies. A prolonged drop in tech shares would directly affect these individual retirement portfolios.