Global Tech Selloff Spreads But AI Stocks Show Signs of Recovery

Key Takeaways

• Global stock markets deepened their selloff Friday as traders worried that the Democrats’ midterm sweep would hamper the AI buildout.
• In Asia, Korea’s Kospi halted trading and Japan’s Nikkei entered bear territory, while European stocks also dipped.
• But US markets look set to recover, with analysts unsure whether this is the start of a sustained downturn for the AI trade.

Global equity markets extended their postelection rout Friday, with sharp losses bleeding into Asia and Europe after the Democrats’ victory in the US midterms triggered an exodus from AI stocks and sent the Nasdaq into correction territory on Thursday. But there were tentative signs of a possible recovery when US markets open on Friday, with many bellwether tech stocks called higher.

Volatile trading deepened in Asia in the last trading session of the week, with South Korea’s Kospi, one of the biggest winners from the AI boom, plunging more than 6% as exacerbating fears of a fallout for its memory chip heavyweights SK Hynix 000660 and Samsung 005930 temporarily halted trading earlier in the session. The two stocks are now down around 19% and 13%, respectively, since the election outcome, with the broader index 12% lower. In Japan, the Nikkei 225 tumbled 5.9% Friday to enter bear market territory, amid losses for semiconductor-related stocks and tech investment giant SoftBank Group 9984.

Over in Europe, which lacks exposure to many Big Tech companies, the Morningstar Europe Market Index was down 1.7%, with selling broad-based even as tech stocks hit in the prior session like ASML ASML showed signs of rebounding.

However, there were early signs of a respite from the selling. US futures tied to the Nasdaq and the S&P 500 were seen up 0.3% and 1.4%, respectively, clawing back some losses from the prior session as investors attention turned to Friday’s US jobs report. Shares in some of the hardest hit tech stocks were also seen rebounding in pre-market trade, with CoreWeave CRWV and Advanced Micro Devices AMD both up 7%, Micron MU up 8%, Nvidia NVDA up 4% and neocloud stock Iren IREN rebounding 17%.

Why Wall Street’s AI Stocks Are Selling Off

The latest market moves follow a brutal day of selling on Wall Street on Thursday, when the tech-heavy Nasdaq plunged 6.4% to record its worst day since the trade war selloff in April 2025 as the index confirmed a technical correction—a 10% drop from its Oct. 6 peak. The S&P 500, meanwhile, slumped 4.4%, wiping out $3 trillion in value in what was also its biggest drawdown since April 2025.

The sharp selloff comes after an initial postelection rally, in which markets welcomed the removal of political uncertainty and the prospect of policy gridlock. However, investors quickly grew spooked that the Democratic Party sweep in Congress could usher in a new era of increased AI regulation and a potential slowdown in AI data center construction.

“This is another stick to hit the AI buildout with,” says Michael Roeg, senior equity analyst at Degroof Petercam. “There’s all sorts of ingredients for this toxic cocktail and now we have the midterms,” he continued, citing previous pullbacks on concerns over hyperscalers’ free cash flow, funding circularity, and neocloud risks.

Elsewhere, government bond yields were only marginally higher than Thursday, with the yield on 10 year US Treasuries last seen at 4.85%. Oil prices ticked higher, with Brent crude oil futures hovering above $ 98 per barrel. Spot gold prices eased slightly after climbing to $4,078 overnight.

Is the AI Stock Selloff a Temporary Correction?

Even before this week’s volatility, tech stocks were on an uncertain footing as investors grew more skeptical of the return on investment of bumper AI spending, following a record runup in tech shares in the first half the year. Now, attention turns to how increased congressional oversight and changes in state authority may impact the data center roll out, including permitting and electricity and water use.

“The tech trade has always been about sentiment rather than fundamentals. We think the latter are sound, but sentiment has turned negative and it will take a lot to turn it back around at this stage. In the meantime institutional investors are selling, locking in decent gains year to date, while retail investors are panicked, further deepening the rout,” says Morningstar’s chief European markets strategist Michael Field.

Analysts nevertheless are divided on the length and extent of this latest rout. UBS say they view the latest pullback as a “positioning reset” rather than a sign of a lasting downturn in the AI investment cycle. They add that they expect to see upside in broad equity indexes over the next six to 12 months.

“For the selloff to signal a lasting downturn in the AI investment cycle, we think we would need to see evidence that AI-related revenue growth is slowing, cloud utilization is weakening, or lower AI costs are failing to generate sufficient new usage to absorb expanding capacity,” UBS’s chief investment officer Mark Haefele adds.

What’s Next for AI Stocks After the Selloff?

Degroof’s Roeg notes that increased AI curbs may see the AI capex curve slow down and extend over a longer period of time. However, he adds that the “silver lining” is that AI compute is going to become even more scarce, bolstering already constrained demand. “Q3 hasn’t shown any signs of weakening demand. The stock market is moving in a very different direction to fundamentals.”

Attention now turns to Friday’s US jobs report, with investors expecting hiring to have remained soft in October but unemployment to hold steady at a low 4.2%. Investors will also be looking for how that print—and the AI latest market rout—may inform the Federal Reserve’s next meeting in December.

“With AI fears gathering pace again, that led to a fresh round of question marks as to whether the Fed would hike again in December. For now it’s still considered likely, but market pricing came down from 82% on Wednesday to 68% by last night’s close,” says Jim Reid, head of global macro and thematic research at Deutsche Bank.