U.S. elections trigger a sharp selloff in AI stocks

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Elections trigger a sharp selloff

Why investors fear the Democrats' victory

The main driver of the selloff was concern that the new political landscape in the U.S. could slow the expansion of AI infrastructure. Following the Democrats' success in the elections, investors expect greater regulatory scrutiny of technology companies and stricter requirements for data center construction.

Growing opposition from local communities to the expansion of computing infrastructure is adding further pressure. Large data centers consume substantial amounts of electricity and water, raising concerns about higher utility bills and the strain on local resources.

In particular, Texas Governor-elect Gina Hinojosa said she intends to introduce legislation to protect state residents from the negative effects of data center development.

However, AI stocks had already been under pressure before the elections. Investors were increasingly questioning whether massive investments in computing capacity would generate the expected returns.

One notable example is CoreWeave, a company specializing in AI cloud computing. Its shares fell 10%, while the cost of insuring the company's debt against default reached a record high.

Authorities attempt to stabilize markets

Amid the widespread selloff, authorities across Asia began taking measures to stabilize financial markets.

In South Korea, Finance Minister Lee Hyoung-il temporarily eased restrictions on leveraged investments by retail investors. In Taiwan, according to Reuters, the Ministry of Finance instructed executives at state-owned banks to support the stock market.

These measures helped limit some of the losses. Taiwan's benchmark stock index closed down 4.5%, although it lost 12.2% over the week. This marked its biggest weekly decline since 1991.

However, analysts warn that it is too early to declare the selloff over. Steve Sosnick, chief strategist at Interactive Brokers, noted that even if stocks have become oversold in the short term, the fundamental reasons behind the decline have not disappeared.

At the same time, some experts believe the market is approaching a local bottom. Allen Huang, vice president at Mega Financial Holding, believes that widespread forced selling by leveraged investors could indicate that the market downturn is entering its final stage.

Investors seek safety in bonds

The decline in technology stocks prompted investors to shift capital into safer assets. Demand for U.S., Japanese, and Chinese government bonds increased across Asian markets. The U.S. dollar, Japanese yen, and Swiss franc also attracted safe-haven demand.

The yield on the benchmark 10-year U.S. Treasury note stood at 4.838%, near its lowest level since September 9. The yield on comparable Japanese government bonds fell to 1.795%, its lowest level since late June.

Masahiko Loo, chief fixed income strategist at State Street Investment Management, believes the market turmoil reflects a reassessment of political risks facing the AI industry rather than a fundamental change in the long-term outlook for the technology itself.

Thus, the Democrats' victory has intensified investor doubts about the AI sector's future growth. Market participants must now assess how potential regulatory restrictions and opposition to data center construction could affect the profitability of technology companies.

As a reminder, the election results also triggered a sharp decline in Bitcoin's price.

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