LIVE MARKETS-AI selloff tests investment boom; analysts see de-risking, not fundamental reset

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AI SELLOFF TESTS INVESTMENT BOOM; ANALYSTS SEE DE-RISKING, NOT FUNDAMENTAL RESET

The sharp pullback in AI stocks reflected investors trimming positions rather than abandoning the long-term AI spending story, analysts at Jefferies, UBS and Rabobank said, though they warned that political and regulatory hurdles could make the data-center buildout slower and costlier.

AI-linked stocks slumped on Thursday and about $2.5 trillion was wiped from the Nasdaq 100's market value after Democratic wins in US midterm elections heightened concerns that opposition to data centers could slow projects and raise costs.

Those concerns add to existing worries about returns on vast AI investments, increasingly complex financing structures and the unusually large contribution of technology spending to US growth.

The Philadelphia Semiconductor Index .SOX, which includes chipmakers Nvidia NVDA.O and Intel INTC.O, is down about 40% from its record high reached on July 23.

Mohit Kumar, economist at Jefferies, said he does not view the selloff as the start of an unwinding of the AI trade, noting that AI investment has become an important driver of US growth and job creation.

"We see the path for AI buildup as having more guardrails and checks, but we do not see midterms as derailing the AI trade," Kumar said.

Analysts broadly said investors are reassessing execution risks tied to permitting, power availability and construction timelines rather than questioning demand for AI infrastructure itself.

Elwin de Groot, head of macro strategy at Rabobank, said the AI investment cycle remains intact, although future data-center expansion could become slower, more expensive and geographically fragmented as projects navigate permitting, regulatory and energy-related constraints.

(Rashika Singh)

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