By Shashwat Chauhan and Utkarsh Hathi
Nov 5 (Reuters) - The Nasdaq Composite looked set to confirm a correction on Thursday, with chipmakers tumbling, after the Democrats' sweeping victory in midterm elections fueled fears of tighter AI regulation.
The Nasdaq and S&P 500 were set for their biggest one-day drop since the April 2025 "Liberation Day" selloff.
Nvidia dropped 6.4%, while the broader Philadelphia SE Semiconductor index plunged nearly 11%.
The shock selloff comes a day after the Democrats'
election victory including in some key data-center states drove concerns about a slowdown in the AI data center buildout, optimism about which had pushed stock markets to record highs earlier this year.
"Investors appear to be recognizing that some newly elected members of Congress and governors are looking to slow the pace of AI infrastructure development," said Melissa Brown, global head of investment decision research at SimCorp.
"While it seems unlikely that they will be able to stop it altogether, any slowdown would raise concerns because the AI growth story has largely depended on the rapid buildout of supporting infrastructure."
The sharp declines put the Nasdaq Composite on track to confirm a technical correction, or a 10% drop from its October 6 record-high close. The more narrow Nasdaq-100 had confirmed a correction on Monday.
At a drop of around 5.4%, the Nasdaq-100 is set to erase over $2.2 trillion in market value, if losses hold.
Most large-cap tech stocks also lost ground after Wednesday's rally. Meta Platforms slid 5.7%, while Amazon.com and Alphabet fell 4.3% and 3%, respectively.
Data center operators IREN and Applied Digital, neoclouds CoreWeave and Nebius Group and AI-exposed utilities and equipment suppliers such as GE Vernova and Constellation Energy all saw steep losses.
Elon Musk-led Tesla and SpaceX tumbled more than 10% each, extending losses. Musk spent nearly half a billion dollars backing Republican candidates.
Qualcomm slid 13.5% after the chipmaker fell short of Wall Street estimates for fourth-quarter smartphone chip sales.
At 11:00 a.m. ET, the Dow Jones Industrial Average fell 1,146.83 points, or 2.15%, to 52,209.29, the S&P 500 lost 246.37 points, or 3.20%, to 7,440.29 and the Nasdaq Composite lost 1,273.18 points, or 4.95%, to 24,463.34.
Seven of 11 major S&P 500 sectors were in negative territory, with the tech sector and consumer discretionary leading losses, while energy gained the most.
The benchmark clocked its biggest one-day percentage gain in three months on Wednesday as easing political uncertainty boosted risk appetite.
Some analysts said that a divided government in Washington could lead to fewer sharp legislative changes and may even make it harder to agree on fiscal spending, given the US's deteriorating fiscal picture. A sharp drop in oil prices had also aided sentiment.
Central banks around the world have acknowledged inflation remains elevated as crude oil prices surged due to the Middle East conflict.
Cleveland Federal Reserve President Beth Hammack and Richmond Fed President Thomas Barkin both hinted at the possibility of future rate hikes in comments on Thursday.
Focus will be on the US October non-farm payrolls data due Friday, as traders currently expect the Fed to hike rates next month following the September rate hike.
Declining issues outnumbered advancers by a 2.45-to-1 ratio on the NYSE and by a 3.56-to-1 ratio on the Nasdaq.
The S&P 500 posted 74 new 52-week highs and 6 new lows, while the Nasdaq Composite recorded 140 new highs and 430 new lows.
(Reporting by Shashwat Chauhan and Utkarsh Hathi in Bengaluru; additional reporting by Joel Jose; Editing by Maju Samuel)
