The US market rally after the elections lasted only one session. On November 5, investors began selling off shares of chip and server manufacturers, and the decline soon spread to the broader market. #NQ100 plunged to the vicinity 26,300 points and bounced back to 26 900. The benchmark indices for #SP500 and #DJI30 ended the US session with declines of 4,4% and 3,4% respectively.
At the end of October, we wrote that renewed interest in AI had helped US indices bounce back. At that time, investors were encouraged by strong cloud business results and clearer timelines for return on investment. Now, the market has to reassess how quickly data centers will be built and when suppliers will receive orders that investors are already counting on.
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Why Congressional elections hit AI stocks
Democrats secured a majority in both chambers of Congress. On Wednesday, the broad market reacted to the election results with gains, but on Thursday attention shifted to what the change in majority might mean for the AI industry. Investors began factoring in the risk of stricter regulation on data center construction. One contentious issue is the strain on power grids.
If approval for new sites drags on, some orders for chips, servers, and networking equipment may be pushed back. This is particularly critical for companies whose stock prices have already priced in rapid supply growth.
Reports fuel the sell-off
Fresh results from Qualcomm and Arm added reasons to sell. Qualcomm's quarterly revenue from smartphone chips fell by 26% year-over-year and came in below forecasts. Arm reported record total revenue, but received $670 million in royalties for the use of its technologies against expectations of around $721 million.
Equipment buyers have their own problem. Alphabet's cloud revenue more than doubled for the quarter, yet the company's free cash flow was negative at $9.1 billion. One of the main reasons was large investments, and the company expects further growth in capital expenditures in 2027. Even with strong demand, investors have to wait longer for a return on these expenses.
Which stocks lost the most
By the close of US exchanges, basic shares #Micron and #AMD lost 17,5% and 17,3%. Next were #Marvel (−16,4%), #Dell (−15,0%), #AppliedMat (−13,6%), #Arm (-13.1%) and #NVIDIA (-9.3%). At #Micron there was also a separate reason for the decline. According to Bloomberg, the company suspended its factory project in Taiwan due to a prolonged labor dispute.
According to analysts' estimates FreshForex, in the next few sessions #NQ100 may once again drop to 26,300 points. If chip manufacturers' stocks fail to recover even part of their losses, pressure on the index will intensify, and it risks falling below this level.
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