• Nasdaq drops 3.6% as AI infrastructure stocks lead losses; AMD and Nvidia among hardest hit.
  • Investors question returns on massive AI investments amid rising financing costs and political uncertainty.
  • Midterm elections raise specter of tighter data-center oversight, adding to market jitters.

AI Trade Under Pressure

A sharp selloff in technology stocks rocked markets on Thursday, with the Nasdaq Composite tumbling 3.6% and the S&P 500 falling 2% by late morning in New York. The downturn was led by AI chipmakers and infrastructure plays, as investors grew increasingly wary of the enormous capital expenditures required to sustain the artificial intelligence boom.

Advanced Micro Devices Inc. plunged 16%, Nvidia Corp. sank 8.6%, and Microsoft Corp. dropped 3.6%. The pain spread beyond semiconductors: cloud-computing providers, data-center suppliers, and even utilities exposed to AI construction saw steep declines. Tesla Inc. slid 10.7%, while SpaceX (NASDAQ:SPCX)—which has a substantial AI business—fell 10.7%.

“The market is shifting from rewarding AI capacity expansion almost automatically toward demanding evidence of profitable utilization,” said one portfolio manager who asked not to be named. “Investors want to see free cash flow, not just revenue growth.”

Cash Flow Concerns Mount

The central worry is increasingly cash generation. Recent quarterly reports showed negative free cash flow at Alphabet Inc., Amazon.com Inc., and Meta Platforms Inc., while Microsoft’s free cash flow declined 27% to $18.63 billion. Despite strong revenue growth—AMD’s data-center sales jumped 97% to $8.5 billion—the market is reassessing future demand and valuation rather than reacting to a collapse in current sales.

Financing costs are adding to the pressure. The 10-year Treasury yield stood at about 4.86%, down from above 5.30% last month but still elevated, making it more expensive to fund the massive data-center buildout. Meanwhile, Brent crude recovered to around $96.95 a barrel amid continuing uncertainty over the Iran war, complicating the inflation outlook and potential Federal Reserve rate decisions.

Political Risk Emerges

Adding to the unease, Democrats’ victories in the U.S. midterm elections have raised the prospect of greater scrutiny of data-center expansion. Reuters (NASDAQ:TRI) reported growing local opposition to rapid AI infrastructure development, and analysts expect policymakers to take a harder line on permitting and oversight.

“We’re seeing a repricing of policy risk,” said Ipek Ozkardeskaya, senior analyst at Swissquote (SIX:SQN). “It’s not a nationwide construction ban, but the market is waking up to the possibility of delays and higher regulatory hurdles.”

Tesla and SpaceX also face heightened political uncertainty due to Elon Musk’s substantial support for Republican candidates. Musk spent nearly half a billion dollars backing GOP contenders, according to Reuters, and while no new regulatory penalties have been announced, the political association is weighing on sentiment.

Global Spillover

The selloff extended beyond U.S. borders. South Korea’s Kospi fell 5.3%, and Japan’s Nikkei 225 declined 1.8%, reflecting the global nature of the AI trade. In the U.S., Nvidia’s hefty index weight dragged down major benchmarks even as many individual S&P 500 companies advanced.

Not all stocks suffered. AppLovin Corp. and Tapestry Inc. rose sharply following strong earnings, while energy stocks outperformed. The divergence underscores that this is not uniform economic pessimism but a targeted repricing of AI-related risk.

What’s Next

Investors will closely watch Nvidia’s upcoming earnings on November 17, with guidance calling for quarterly revenue of approximately $108 billion, plus or minus 2%. The next U.S. payrolls report and expectations of further Fed tightening also loom large.

As one trader put it, “The AI story isn’t dead, but the easy money has been made. Now comes the hard part: proving these investments can pay off.”

Correction: An earlier version of this article misstated the percentage decline for Nvidia. It fell 8.65%, not 8.6%.