Truace
Subscribe

US tech stock rout: is the AI bubble bursting?

Global financial markets have been thrown into a tailspin as investors bet on an AI slowdown after the US midterm elections. This is not the first time stock markets have wobbled in recent months due to concerns over a tech bubble. But could this volatility be the start of a huge market meltdown? What has happened? Shares on Wall Street plunged on Thursday, in a rout driven by AI and technology stocks that extended to Asia and Europe on Friday. US markets rebounded after trading reopened in New York, but failed…

Truvace record3 min read1 sourceEvidence: Emerging · 42/100 — News report · 1 independent sourceJournalismTRV-2026-2399 · cite or check it
US tech stock rout: is the AI bubble bursting?

In brief

Shares on Wall Street plunged on Thursday in a rout led by AI and technology stocks, then spread to Asia and Europe on Friday. More than $3.2tn was wiped from US market value, as the Nasdaq fell 5.5% and the S&P 500 fell 4.4%. US markets later rebounded but did not recover all the lost ground.

The sell-off has been attributed to the Democrats' sweeping midterm election victory. Investors are predicting that a Democrat-controlled Congress could bring tighter control of AI and datacentre construction, slowing one of the engines of global growth and corporate earnings. Datacentre moratoriums were effectively on the ballot in several states.

The stakes reach households. The seven largest tech stocks make up more than a third of the S&P 500, so index-tracking funds are tied directly to them. Investors are divided on what comes next: some fear a self-reinforcing loss of confidence, while UBS's Mark Haefele said fundamentals do not justify a prolonged downturn.

Main points

  1. The Nasdaq fell 5.5% and the S&P 500 fell 4.4% on Thursday, and the rout spread to Asian and European markets on Friday.
  2. The trigger was attributed to the Democrats' midterm victory and expectations of tighter control of AI and datacentre construction.
  3. The cyclically adjusted price-to-earnings (Cape) ratio had risen to its highest level since 2000 before the sell-off.
  4. Alphabet shares fell last week after lower than expected profits, wiping more than $500bn from its value.
  5. Opinion polls show most Americans oppose US datacentre construction.
  6. Nvidia, Apple, Google, Microsoft, Meta, Amazon and Tesla together make up more than a third of the S&P 500.
  7. Quilter Cheviot's Ben Barringer expects a pause in the buildout and delayed approvals, but said new Texas governor-elect Gina Hinojosa is likely to be pragmatic.

The problem

A tech-led sell-off on Thursday wiped more than $3.2tn from US stock values, with the Nasdaq down 5.5% and the S&P 500 down 4.4%, as investors bet on tighter AI and datacentre controls.

The full story

The sell-off came after months of warnings about AI company valuations. Analysts said valuations had become increasingly detached from reality, and the Cape ratio showed the US market was unusually highly valued relative to profits. Alphabet's drop of more than $500bn last week after weaker profits added to the unease.

Politics supplied the immediate trigger. Moratoriums on datacentre construction were effectively on the ballot in several states amid public opposition to resource-hungry facilities. Elon Musk gave nearly half a billion dollars to back Republicans, and shares in SpaceX and Tesla fell sharply after the midterms.

The macro backdrop is fragile. AI-led growth had helped soften the hit to the world economy from the Iran war, and central banks have been raising interest rates after the inflation shock. A sustained tech slump could force a rethink and raise the risk of stagflation, which would hurt countries that pinned hopes on AI creating jobs and productivity.

Views on what happens next differ. Barringer warned a virtuous circle could quickly turn vicious. UBS's Mark Haefele called the rout 'market indigestion' and said the AI investment cycle should remain intact, noting demand for AI and semiconductors will not vanish overnight.

Sources

  1. JournalismThe Guardian2026-11-06

The debate