Midterm Sweep Could Turn Tech's Selloff Into a Rout

Shares of the most prominent artificial intelligence companies came under pressure again this week, adding to a slide that has already tested investors who piled into the sector during the AI boom. The selling has been broad enough to drag on the wider technology market, and there is no clear sign yet that it has bottomed.

The larger concern for many traders is the calendar. Voters go to the polls on November 3, and a Democratic sweep of both chambers of Congress would give one party control over the legislative agenda for the first time in a while. Market watchers worry that such an outcome could bring closer scrutiny of the largest tech firms, including on antitrust, data privacy and rules governing how AI systems are built and deployed. Divided government, by contrast, tends to block sweeping new laws, which is why some investors see gridlock as the less disruptive path.

Why would that matter so much for AI stocks? The biggest players have committed enormous sums to chips, data centers and power supply, and their share prices reflect expectations of strong growth for years to come. Any policy shift that raises compliance costs, invites breakup efforts or slows the approval of new energy and construction projects could force investors to rethink those assumptions quickly. That is the scenario behind the warning that the current pain could get worse after the vote.

Still, the risk is not a certainty. Markets often move on expectations well before an election result is known, and some of the recent weakness may reflect factors unrelated to politics, such as valuations that ran ahead of earnings. Investors will be watching both the polls and the company results in the weeks ahead, and they will be looking for any sign that the policy debate is turning into concrete action.