‘total Bloodbath’: Democrats‘ Sweeping Wins Rock Wall Street Over Ai Fears

Democrats vowed to put a halt to the new data centers cropping up across the country that are fueling the artificial intelligence boom.

Now, after the midterms, Wall Street is finally taking them at their word — and President Donald Trump is pointing fingers.

A violent sell-off ripped through the U.S. stock market on Thursday, as traders began to reckon with the scale of Democrats’ plans for the AI buildout. The S&P 500 plunged more than 4%. The technology-heavy Nasdaq Composite Index fell 5.5%. The market’s so-called fear gauge, the Cboe Volatility Index, spiked nearly 70% in a reflection of traders’ concern about further whipsawing. And the selling continued when Asian markets opened.

“The Stock Market suffered one of the Worst Days in History based on the results of the Election. Such a sad thing to watch!” Trump posted on Truth Social after the market’s close Thursday. “It took so much work to get us to a level that no one has ever seen before, and then this. Your 401(k)s have, therefore, dropped. Remember, it wasn’t Republicans, it was Dumocrats.”

“So sad to see,” he added in a follow-up post, “you only have yourselves to blame!”

Stocks have been mired in worries about an AI bubble for months, as traders have piled into just about anything tied to the nascent technology. Yet from Washington to Texas, some Democrats like incoming Texas Gov. Gina Hinojosa are now looking to use their newfound power to slow, if not outright stop, the costly infrastructure buildout that’s underpinning the AI race. And their suddenly not-so-out-there plans are rattling traders, knocking billionaires’ net worths and handing Trump fresh political ammunition.

The stakes go far beyond a single industry’s fate. AI has been a major driver of the economy’s resilience in the face of a slew of shocks, including double-digit global tariffs and a war in the Middle East that has sent oil prices well above $100 a barrel. Stocks linked to the technology have dominated the market’s prior gains.

Skanda Amarnath, executive director of Employ America, estimated that the spending categories most tied to the AI boom contributed to “well over 7.5% of GDP.” And it’s still growing at a rapid clip: AI-related capital expenditures drove 13% of the growth in total nonresidential business fixed investment from the second quarter to the third quarter, according to Abiel Reinhart, a senior economist at JPMorgan Chase.

Investors may settle down over the next few days, concluding that whatever restraints might be coming on AI, particularly at the state level, will merely result in a mild slowdown. But the jitters aren’t likely to go away.

Wall Street’s rout and Trump’s attacks also underscore the political risks that Democrats will face as they look to answer voters’ deafening pleas for a data center slowdown. But for Democrats, the threat doesn’t end there.

“This is a moment for getting policy right,” said Adam Kovacevich, founder and CEO of the center-left industry coalition Chamber of Progress, who noted that many Democrats don’t support a full data center moratorium. “American AI companies are powering the stock market, people’s retirement accounts, their pensions. The data center buildout is putting a lot of Americans to work.”

Perhaps curiously, traders didn’t initially panic about the blue tsunami, even though many Democrats had been railing against data centers throughout the campaign. Stocks actually climbed the day after the election — and even had Trump cheering in a Truth Social post.

One explanation is that some market players hope that restraint on AI could actually be useful since it could cool inflation at the margin, leading to less pressure on the Federal Reserve to raise interest rates much higher.

There are also positive signs that AI could be meeting some of the economic hype, given new data Thursday showing that business sector productivity grew 2.1% in the third quarter, compared to the same period a year ago. Higher productivity, potentially driven by new technology, would allow for faster growth without bigger price spikes.

But traders, finally grasping the breadth of some Democrats’ plans, got spooked Thursday — spurring what Ed Yardeni, president and chief investment strategist of Yardeni Research, called an “AI-related panic.”

How long stocks will be in the tank — if much longer at all — has many in the markets guessing. BMO Wealth Management Chief Market Strategist Carol Schleif brushed off the declines. She said the sell-off was an “excuse for investors” to reposition themselves on the AI trade but that it was “overdone.”

“It’s not based on economic fundamentals,” she said. “It’s based on fear and stories that are probably more applicable to last weekend’s Halloween.”

But Wall Street was stunned this week — particularly by Hinojosa’s defeat of Texas Gov. Greg Abbott, who at least initially was one of the political world’s biggest boosters of data centers. And many investors are still trying to make sense of what the new environment will mean for the AI trade.

“You just saw a complete and total bloodbath,” said Tuttle Capital Management CEO Matt Tuttle. “It’s a very fluid situation, and I think it could go a lot of different ways. But a lot of these names have sold off so much, you could make an argument that the bubble has already popped.”