AILSA CHANG, HOST:
It was an ugly day on Wall Street. Stock markets sank two days after Democrats overwhelmingly won the midterm elections. The reason was a big sell-off in AI shares that sent the tech-heavy NASDAQ down more than 5% and wiped out more than $2 trillion in market value. For more, I'm joined now by NPR senior business editor Rafael Nam. Hi, Rafael.
RAFAEL NAM, BYLINE: Hey, Ailsa.
CHANG: OK, so yesterday, we saw big gains in markets after Democrats won big, and then today we see this huge fall. I don't get what is going on (laughter).
NAM: Yeah, it's been a really weird couple of days. So the markets did rally yesterday, but today was the worst day since about Liberation Day in April last year when President Trump announced sweeping tariffs.
CHANG: Wow.
NAM: That's because going into the election, investors had really worried that we would end up with contested elections that left the fate of Congress undecided. That obviously didn't happen. So that's why there was so much relief yesterday. But think of today as the hangover that followed.
CHANG: OK. Can you just explain why are investors so worried after these sweeping victories for Democrats?
NAM: You know, the big thing was AI, specifically data centers. A big theme in this election was that voters do not like them. They do not like that they gobble up electricity and water resources. There's a lot of fear about AI - will AI replace jobs? - for example. And Democrats got elected promising to do something about it, not only in Congress but also states like Texas. This is how David Busch, the chief investment officer of Trajan Wealth, put it to me.
DAVID BUSCH: There is some concern regarding AI regulation and fears that there could be far more regulations coming to AI technology, as well as a pushback on the build-out of data centers across the country.
NAM: You know, Ailsa, there is a big dilemma here. Yes, voters did not like AI data centers, and Democrats were very effective at channeling that anger. But like it or not, data centers are essential, not only to AI companies but also in terms of propping up our own economy.
CHANG: OK, true. So today's sell-off is a response to a potential pushback on data centers.
NAM: Yeah, investors have plowed billions of dollars into AI companies like Meta or Alphabet, the owner of Google. These companies need to build these data centers to develop AI. And if we see a crackdown on AI data centers, not only in Congress but also in states, that creates a real dilemma for investors.
BUSCH: If we have pushback both at the state and the federal level, then it can slow down the progress of building out this technology and the infrastructure needed for this technology.
NAM: And if that happens, investors may not see the returns they were hoping to get. The other thing is that we're not talking just big Wall Street traders here, Ailsa. If the AI trade gets hit, it could really impact even people like you and me.
CHANG: Wait, how?
NAM: Well, you know, the ultimate dilemma here is we still don't know if this is the start of the big AI sell-off, and AI stocks have really had a really volatile year because investors are concerned about whether these AI investments will pay off. But regardless of how you feel about AI and data centers, a lot of average investors - and this is where I'm talking people like you or me - are invested in AI companies through 401(k)s and pension funds. AI-related companies now make up roughly half of the S&P 500. That's an index of the biggest companies in the U.S. So cracking down on data centers may be a winning issue for Democrats. I'm just not sure whether it would be such a good thing for our own stock portfolios.
CHANG: That is NPR's Rafael Nam. Thank you, Rafael.
NAM: Thank you, Ailsa.
(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.