The Nasdaq Composite dropped 5.5% on Thursday, and the Wall Street AI selloff wiped out about $2.5 trillion in value in a single session. The Wall Street Journal called it a $2.5 trillion AI reality check. If your 401(k) holds a target-date fund, an index fund or a few tech names, this is the day your account balance felt it.
Regulation fears spark the rout
The timing is the strange part. On Wednesday the Dow jumped 1,569 points in a post-midterm rally, a swing we covered in our look at how futures flipped and the Dow soared. The S&P 500 has risen after each of the last 11 midterms, so the tech stock rout broke a very long pattern.
Fox Business and Gizmodo point to the Democratic midterm gains, including in data-center states like Texas. Investors fear tougher AI regulation, more oversight and a slower data-center buildout. Weak earnings from AI-linked companies added fuel.
Jonathan Corpina of Meridian Equity Partners put the mood in one line to the Journal: “It seems like the rug is getting pulled out from under it.”
The Nasdaq correction by the numbers
The Dow dropped 1,833 points to close at 51,523, down 3.4%. The S&P 500 shed 334 points to 7,353, and the Nasdaq slid 1,421 points to 24,315, according to CBC’s market report. That is 5.52% for the Nasdaq and 4.36% for the S&P 500, per CNBC.
Big enough to make April 2025 look familiar. All three major indexes had their steepest one-day drops since the tariff shock that month, CNBC reports. The Nasdaq now sits 11.9% below the record it set last month.
A 10% drop is the textbook definition of a correction, and this one sailed past it. The Nasdaq also fell below its 200-day moving average for the first time since April.
Breadth was brutal. On the Nasdaq, decliners beat advancers 4,166 to 855. All 11 S&P 500 sectors fell.
The Magnificent 7 lost roughly $1 trillion on their own (so much for strength in numbers), and the small-cap Russell 2000 also closed in correction territory. The VIX fear gauge jumped about 70%, its biggest one-day surge in almost two years, according to CNN.
Who got hit hardest in the AI stock crash?
CoreWeave fell 9.8%. Cisco and Caterpillar each lost about 6%. Alphabet, Amazon and Microsoft fell too, but dodged the worst of it, per Axios. The pain went global, as Japan’s Nikkei fell 1.8%.
Retail investors, who powered this four-year rally, were heavy sellers. That is the part worth sitting with.
The $3 trillion question behind the tech selloff
Former New York Fed president Bill Dudley has estimated the sector may need around $3 trillion a year in revenue to justify what investors paid. That is a lot of chatbot subscriptions.
One bad day does not make a crash, and the market has bounced back from worse. Still, if your retirement savings quietly became a bet on a handful of AI giants, this Nasdaq correction was a free lesson in diversification.
What happens next after the Nasdaq correction?
The S&P 500 is within 1% of its own 200-day moving average, and a break would be its first since April.
Then keep an eye on the pipeline, since Anthropic’s IPO is coming and OpenAI’s is expected next year. For a sense of how chip-sector winners are faring, see SK Hynix’s AI chip windfall.
So does Wall Street still want to pay up for AI? Those IPOs are about to ask it, out loud.
