Stocks Reverse Post-Midterm Gains as Jitters Return and the AI Trade Unravels. Nasdaq Plunges into Correction Territory.
Stocks plunged on Thursday, with the Nasdaq Composite sinking into correction territory after plunging more than 5% early in the session and falling over 10% below the record set last month.
The S&P 500 also fell more than 3% at 10:51 a.m. ET, while the Dow Jones Industrial Average fell 2.28% at the same time.
Stocks related to the AI trade are suffering the most as investors fear that Democrats, now in control of both chambers of Congress, will implement regulation that stems the industry’s growth.
Many eyes are on Texas, as Democrat Gina Hinojosa’s victory over Republican Gov. Greg Abbott puts a proposed moratorium on new data center approvals at the center of the state’s next fight over the artificial intelligence buildout.
Hinojosa, who will become the state’s first Latina governor and its first Democratic governor in more than 30 years, campaigned on pausing new approvals until Texas enacts stronger protections for local communities.
Abbott had already moved to slow development. His administration ordered a review of proposed grid connections and directed the state’s environmental regulator to pause permits. In October, some permits had continued to go through an automated system despite the directive.
The scale of the buildout makes even a temporary pause consequential. Texas has nearly three times as much proposed data center capacity as Virginia, the next closest state. Hinojosa can make appointments to state commissions and call special legislative sessions. Changes to tax exemptions or new statutory protections would require lawmakers’ support, and Republicans are expected to retain their state Senate majority.
Yagiz Sullu, founder and lead analyst of Sullu Strategic Advisory, told IBT that Democrats have an opening to revisit tax exemptions and “make investors shoulder the costs associated with data center electricity demand.”
“Texas provides data centers with more than $1 billion in tax breaks each year, and the growing development of these centers raises concerns about meeting their electricity demand,” Sullu said. The debate could determine who pays for substations, transmission lines and other grid upgrades.
Josephine Liu, Chief Policy Commissioner at the International Academy of Artificial Intelligence Sciences, also told IBT that “While a six-month delay may be manageable for companies like Microsoft or Google, it could prove extremely expensive for highly leveraged developers paying interest before generating revenue,” Josephine Liu said.
Higher infrastructure costs, tighter water requirements, or smaller tax breaks could erode expected returns on projects still on paper. “Texas may lose some speculative projects without losing its position as a major AI infrastructure hub,” Liu said. She pointed to the state’s natural gas, renewable energy and available land as lasting advantages.
The rout comes after stocks soared on Wednesday following President Donald Trump’s quick acknowledgement of the midterms’ results, as political uncertainty was removed from the equation. However, fears quickly returned on the next day.
