Tech stocks around the world are falling following the success of the Democratic Party in the US midterm elections – and the UK is not immune.
With many Democratic candidates opposing the data centres which underpin AI, there are fears of a slowdown in the development of the technology due to tougher regulation after the party took firm control of the Senate and House of Representatives.
The subsequent sell-off saw trillions of dollars wiped off the value of major tech stocks, with the Nasdaq – home to some of the world’s largest tech firms – sinking 5.5% on Thursday.
The trend extended overnight to the Asian markets, while those in Europe opened lower on Friday.
The London Stock Exchange’s FTSE 100 index is 2% down today despite being relatively light on tech and AI companies compared with the Nasdaq, Japan and South Korea.
“Last night’s market slide was brutal,” said Jason Hollands, managing director of investing platform Bestinvest by Evelyn Partners. “While London’s stock market is relatively light on technology and AI-adjacent companies, if institutional investors are swept up in a risk-off sentiment reversal, it’s unlikely to escape unscathed.
“Recent weeks have seen deepening nervousness about the vast amounts of CAPEX being ploughed into AI infrastructure, and the financing costs given rising bond yields and relatively scant evidence so far of the vaunted productivity improvements that it is hoped AI will deliver.
“But the latest leg down for tech stocks is in large part a reaction to the significant gains made by the Democrats in this week’s US midterm elections and the implications this could have for both the pace and costs of the build-out of data centres in the US.
“While President Trump can exercise a veto on legislation aimed at greater Federal regulation of AI, the bigger risk is at the state level. Opposition to data-centre development has been growing and is not confined to Washington or to one side of the political divide.
“Local groups are raising concerns about electricity bills, water, and land use, and whether communities receive enough benefit. That resistance is increasingly finding its way into proposed moratoria, permitting rules and other requirements that could slow projects or raise their costs.
“Data Center Watch estimates that 45 projects across 27 states were blocked or delayed in the second quarter, representing about $68 billion of potential investment. It doesn’t mean this spending will be permanently lost: projects may be delayed or withdrawn. The broader signal is that local opposition could create friction across a much larger pipeline of developments than the projects already affected.
“The US AI buildout is not about to stop but local resistance and a shift in the political balance across the States could impact both the pace of development and the issuance of permits, as well as the economics of building new capacity with greater scrutiny over who pays for power and infrastructure, and whether developers can win local support. This is feeding into investor anxiety.
“While there has been an ongoing debate over whether AI is a bubble that will eventually burst, valuations have become cheaper and so if this is a bubble, it certainly isn’t a classic one where valuations become detached from reality – the debate is whether future earnings expectations will prove over-optimistic. Bull markets do not rise in a linear fashion and it is too soon to know whether these declines are just a short-term blip or a more durable shift.
“Those with long memories may recall that during the DotCom Bubble the Nasdaq Composite experience eight corrections – declines of more than 10% – and one bear market, before the bubble decisively burst.”
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