By Noel Randewich and Utkarsh Hathi
Nov 5 (Reuters) - The Nasdaq Composite ended sharply lower on Thursday, notching its deepest one-day drop in 19 months and confirming it was in a correction, as chipmakers sank on fears of tougher AI regulation after Democrats won control of the US Congress.
Democratic wins on Tuesday, including in states where opposition to new data centers has mounted, fueled concerns that tighter regulation could slow the AI infrastructure buildout that has helped lift stocks
to record highs this year.
Nvidia and other major chipmakers tumbled.
"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 Nasdaq Composite logged its biggest daily drop since President Donald Trump's "Liberation Day" tariff announcement in April 2025. The index ended down more than 10% from its October 6 record-high close, confirming a technical correction.
While chipmakers that provide components for AI data centers were among the deepest decliners, other large-cap tech stocks also lost ground after rallying on Wednesday. Meta Platforms, Amazon.com and Alphabet fell.
Data center operators IREN and Applied Digital, neoclouds CoreWeave and Nebius Group all tumbled. AI-exposed utilities and equipment suppliers GE Vernova and Constellation Energy also dropped.
Elon Musk's Tesla and SpaceX both dropped. Musk spent nearly half a billion dollars backing Republican candidates in the midterm elections.
Qualcomm fell after the chipmaker fell short of Wall Street estimates for fourth-quarter smartphone chip sales.
"This feels like the capitulation phase for the data center capex beneficiary stocks, especially the semiconductors," said Jed Ellerbroek, portfolio manager at Argent Capital Management. "But I think the magnitude of the moves is outsized."
According to preliminary data, the S&P 500 lost 331.94 points, or 4.32%, to end at 7,353.65 points, while the Nasdaq Composite lost 1,421.50 points, or 5.46%, to 24,315.02. The Dow Jones Industrial Average fell 1,842.69 points, or 3.45%, to 51,513.43.
On Wednesday, the S&P 500 clocked its biggest one-day percentage gain in three months, as political uncertainty eased, boosting risk appetite.
Some analysts said a divided government in Washington could lead to fewer sharp legislative changes and may make it harder to agree on fiscal spending.
Cleveland Federal Reserve President Beth Hammack and Richmond Fed chief Thomas Barkin hinted at the possibility of future rate hikes in comments on Thursday.
Focus will be on the US October nonfarm payrolls data due Friday. Traders currently expect the Fed to hike rates next month following the September rate hike.
(Reporting by Shashwat Chauhan and Utkarsh Hathi in Bengaluru, and by by Noel Randewich in San Francisco; additional reporting by Joel Jose; Editing by Maju Samuel and David Gregorio)
