Is the AI bubble bursting?
That question was on the minds of millions of investors Thursday, as the Nasdaq Composite (NASDAQINDEX:^IXIC) had one of its worst days ever, plunging 5.5% as fears spread that a political backlash could stifle the AI boom, following the midterm elections.
Did you miss Nvidia in 2009? This rare signal flashes again. In 2009, a “Double Down” signal sounded for a little-known chipmaker called Nvidia. For the first time in years, this same signal of “total conviction” rings out for a company a hundredth the size of Nvidia. Continue “
Investors believe election winners in Texas and elsewhere will impose significant restrictions, or even an outright ban, on data centers, which became a lightning rod during the campaign. After being among the few losers on Wednesday, chip stocks collapsed on Thursday, with the VanEck Semiconductor ETF losing 11.2%. Same industry leader Nvidia lost 9.1% and the crash triggered a broader sell-off in the stock market, with all 11 sectors falling, even the most defensive ones like utilities and consumer staples.
Image source: Getty Images.
What’s happening in the data center industry
AI infrastructure stocks started to wobble a few weeks ago, starting with a chart showing that neocloud operator by CoreWeave (NASDAQ: CRWV) bond yields soared as high as 15%, and concerns about a potential default sent shares tumbling.
Results from large hyperscalers have been similarly received, with investors concerned about skyrocketing capital expenditures and negative free cash flow, even as these companies continue to grow rapidly and are extremely profitable.
Then the election happened and fears of a slowdown in data center construction led investors to flee AI stocks.
Stock market reactions to elections are notoriously ill-considered and often short-lived. Stocks fell following the Brexit decision before rebounding in the following days, and stocks plunged overnight when President Trump was first elected before turning green the next day.
This sounds like a similar reaction. Technology stocks first fell Tuesday evening before the Nasdaq jumped on Wednesday. The response is understandable as data centers were a major talking point during the campaign, but the sell-off appears to be an overreaction.
Gina Hinojosa, the governor-elect of Texas, campaigned for a temporary moratorium on data centers and reasonable guidelines, such as banning subsidies for data centers. However, she is not radical and told CNN: “We will have laws to protect Texans, and we need to stop what we are doing with data centers until we have those protections.”
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