Global technology stocks wobbled after the US Democratic party swept the midterm elections, setting the AI trade up for greater regulatory scrutiny.
Democrats flipped control of both the House of Representatives and Senate, handing the party greater domestic control over US policy and introducing a major blocker to President Donald Trump’s agenda.
In the US, a bill must pass both houses of Congress before being sent to the President to be signed into law.
Wins in Texas and Kansas shocked the political landscape as Democratic candidates flipped traditionally Republican-leaning states.
AI data centers have become a lightning rod issue in Texas, where voters worry the massive facilities will trigger blackouts on the state’s already-strained power grid.
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SUBSCRIBE HERE“Technology stocks… could feel the heat as a Blue sweep raises worries that the sector is in store for greater regulatory scrutiny, especially when it comes to the buildout of data centres,” Kit Rees, investment strategist at Quilter, said.
Asian markets turned red led by steep losses in tech firms. Japan’s Nikkei 225 was down 3.6 per cent to its lowest level since early May before reversing some losses.
Shares in Open AI investor Softbank were down eight per cent while memory chipmaker Kioxia Holdings was down over five per cent.
South Korea’s Kospi was able to scrape into the green in later trading, finishing 0.6 per cent higher after Samsung reversed some early losses to finish just 0.6 per cent lower.
In the UK, stocks were mixed as investors digested the Democrats win. Defence stocks fell with BAE Systems down four per cent while Babcock tumbled 2.6 per cent.
But this was offset with a rally in the London-listed banking giants with HSBC up 3.6 per cent and Barclays and Natwest around three per cent.
More rotation out of tech stocks expected
“While we are already seeing plenty of regulatory pushback at the state and local government level which may delay the data centre build-out, federal regulation arguably presents a bigger risk to the AI trade because it could delay the speed of AI adoption too,” Stephen Brown, chief North America economist, said.
Wall Street futures were also jittery with the tech-heavy Nasdaq and broad-based S&P 500 all forecast to drop into the red.
She added this could coincide with a “slowdown” in earnings growth for the Magnificent 7, the cohort of US technology and growth stocks that wield heavy influence over major stock market indices.
Analysts at Deutsche Bank said: “When it comes to the market reaction, there’s been a clear selloff in US equity futures, led by the tech sector.
“In part, that reflects investor expectations that Democratic control in Congress might lead to tougher regulation on AI.”