Democratic Victory in U.S. Midterm Elections Triggers Sharp Selloff in AI Supply Chain, Nasdaq Falls 5.52% in a Single Day

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Overnight, the three major U.S. stock indices all fell sharply, with the Dow down 3.44%, the Nasdaq down 5.52%, and the S&P 500 down 4.36%, all marking their largest single-day declines since April 7, 2025.

On the board, the AI industry chain suffered a heavy blow, with the Philadelphia Semiconductor Index down more than 12%, AMD down more than 17%, Intel down more than 10%, and Nvidia, Qualcomm, and ASML down more than 9%; the memory chip sector led the decline, with SanDisk down 22.26%, Micron Technology down 17.46%, Western Digital down 17.35%, and Seagate Technology down 16.25%.

U.S. stocks set off a "blue wave"

In the view of market participants, the heavy blow to the AI industry chain lies in the fact that in the current U.S. midterm elections, the Democratic Party (often represented by the color blue in the media) has regained control of both the Senate and the House of Representatives. The Democratic Party has consistently advocated strict regulation of AIDC projects.

In the U.S. midterm elections, the Democratic Party won a majority of seats in both the Senate and the House of Representatives and won gubernatorial elections in five states: Texas, Ohio, Nevada, Georgia, and Michigan. Among them, Gina Hinojosa, a Democrat whose core platform is suspending the construction of new data centers, became the first Democratic governor of Texas in more than three decades, a result that greatly surprised the market.

According to Goldman Sachs estimates, after the Democratic victory, states that may further tighten data center regulation together account for about 45% of the planned data center capacity across the United States, with Texas alone accounting for about 26.7%. Goldman Sachs expects that the new governors of Texas, Georgia, and Michigan may first introduce conditional bans while awaiting new legislation.

Democratic leaders speak out one after another

U.S. Representative Yassamin Ansari, a Democrat from Arizona, said on social media that pausing AI development must be the top priority for the House Democratic majority on its first day in office. U.S. Representative Greg Casar, a Texas Democrat and chair of the Congressional Progressive Caucus, reposted Ansari's post and said "Exactly!"

In addition to lawmakers, some Democratic governors who won elections are also criticizing data center construction. Pennsylvania Governor Josh Shapiro signed an executive order in August this year aimed at slowing data center development. He said large tech companies should not decide the future of local residents. He said, "Instead, the final say should rest in the hands of the people of our local communities."

Gina Hinojosa, the newly elected Democratic governor of Texas, said throughout her campaign, "If I am elected governor, I will pause all data center approvals until the legislature passes laws that protect the people of Texas."

Musk and others see wealth shrink sharply

As current tech giants continue to ramp up AI investment, amid the wave of AIDC regulation set off by the Democratic Party, tech giants have also clearly encountered selling pressure, which in turn has led to a sharp shrinkage in the wealth of super-rich individuals.

Statistics from the Forbes real-time billionaires ranking show that the combined net worth of five tech billionaires—Musk, Michael Dell, Jensen Huang, Larry Ellison, and Zuckerberg—shrank by $152.9 billion in a single day.

On this wealth-loss list, Musk ranks first. His net worth fell by $91.2 billion in a single day, a decline of 10.50%, with his shrinkage alone accounting for nearly 60% of the five individuals' total losses.

The reason Musk's wealth shrank the most is that he spent at least $474 million in the U.S. midterm elections, including $224 million in Texas alone, where Tesla and SpaceX are headquartered.

Dell founder Michael Dell follows, with his net worth down $20.5 billion in a single day, a decline of 9.60%. Nvidia CEO Jensen Huang's net worth shrank by $15.1 billion, a decline of 8.70%. Oracle founder Larry Ellison lost $13.2 billion, a decline of 8.05%. Meta founder Zuckerberg lost $12.9 billion, a decline of 5.98%.

Fed rate hike expectations remain

It should be noted that although the direct trigger for this U.S. stock market plunge came from changes in regulatory expectations brought about by the U.S. election results, the game over the pace of Federal Reserve rate hikes is also affecting U.S. stock market trends. Recently, several Fed officials said the Fed can raise rates gradually.

Cleveland Fed President Beth Hammack said in a speech before an event in Zurich, Switzerland, that day: "I expect the Fed will need to shift monetary policy to a restrictive stance in order to push inflation back to the 2% target in a timely manner." Hammack also said that raising rates step by step helps prevent the public from forming deeply entrenched "inflation expectations" and avoids high inflation gradually becoming a generally accepted norm in society.

Richmond Fed President Barkin expressed a similar view. He said on Thursday this week that the current inflation level is "still too high" and has shown no signs of falling back. Barkin pointed out that for the Fed, this means the direction of monetary policy is quite clear. As for the pace of future rate hikes, "taking a gradual approach is reasonable." According to the Fed's rate tool, the probability of the Fed raising rates by 25 basis points in December is close to 70%.

Could face more selling pressure in the short term?

It can be said that this plunge in U.S. stocks is the result of multiple risk expectations resonating: the inherent fragility at the valuation level, changes in regulatory expectations from the midterm elections, and the game over the pace of Fed rate cuts. From historical data, U.S. stocks may face more selling pressure in the short term, but over a longer period, U.S. stocks are likely to return to an upward pattern.

According to Cailian Press, in the Nasdaq's 10 pullbacks over the past decade, in 2025, 2022, 2020, and 2018, the market suffered further selling within one month after the pullbacks occurred. However, except for 2022, the Nasdaq index returned to an upward pattern within six months after all other pullbacks.

(Source: East Money Research Center) Body middle embedded advertisement