Months of unease over Wall Street’s artificial-intelligence boom erupted into a global market convulsion this week, opening a dangerous new chapter for the investment frenzy that has helped power stock prices, corporate spending and economic growth.
The worries have been on display all year: stretched valuations, mounting debt and doubts about the payoff from trillions of dollars in AI spending. But the Democratic sweep of Congress has added a new political threat, raising the prospect of restrictions on the vast data-center buildout underpinning the boom.
The response has been extraordinary even by the standards of a volatile year. Wednesday brought a sharp – and unexpected — rally in US stocks. Thursday saw a $2.3 trillion wipeout in the Nasdaq 100. At the close, 57% of its constituents had fallen at least 20% from their highs, a greater proportion than when the index itself entered a bear market in March 2022. By Friday, chipmakers had rebounded even as strong jobs data reinforced bets on another Federal Reserve interest-rate increase.
The reversals offer a glimpse of how disorderly the next phase of the AI cycle could become — with little help from the usual rescuers. The Fed remains focused on inflation, with traders betting on another interest-rate increase in December. Weakened by the midterm election, President Donald Trump faces new constraints on fiscal support and may have less incentive to shore up a stock market whose recent losses he has already blamed on the Democrats.
“There are going to be losers, and not everybody who’s investing all of this money in capex is going to be a winner,” said Joe Gubler, a portfolio manager at Causeway Capital Management, which oversees about $76 billion.