AI Stocks Rebound After $2.5 Trillion Wipeout

A severe AI-driven stock sell-off that erased roughly $2.5 trillion in market value from Wall Street eased on Friday, with US tech stocks experiencing a modest rebound. The Nasdaq and S&P 500 rose 1.1 percent and 0.3 percent, respectively, while the Dow fell about 0.5 percent. This rebound occurred after Asian and European markets experienced significant losses on Friday. South Korea's Kospi index and Japan's Nikkei 225 index both closed down 6 percent, while Taiwan's benchmark Taiex index ended 4.5 percent lower.

Despite the rebound, the S&P 500 still finished the week down roughly 2.7 percent, marking its worst week since April 2025. Some of Thursday's hardest-hit US stocks, particularly those tied to AI, rebounded on Friday. Nvidia rose 2.8 percent and SpaceX gained 8.6 percent, recovering from a 9 percent plunge on Thursday. Nvidia's share price had suffered its worst day since January 2025. European indexes, which are not as heavily tilted toward technology stocks, also retreated modestly on Friday.

The recent volatility in AI stocks is attributed to growing uncertainty among investors regarding the impact of the US midterm elections on AI investments. A Columbia Business School study estimates that AI-related infrastructure investment drove nearly all observed US GDP growth by the end of last year. However, backlash against the environmental and community impact of new data centers turned AI spending into a key issue in the US midterm elections. Democrats' sweeping victories have raised concerns that they may block or slow spending on new AI infrastructure.

Jung In Yun, founder and CEO of Fibonacci Asset Management Global, believes that demand for computing power will continue to grow, along with the need for memory chips. He notes that South Korea's tech-heavy market is particularly exposed to shifts in sentiment, which may lead to more swings before confidence settles. Japanese Prime Minister Sanae Takaichi acknowledged the recent volatility in the stock market, stating that the government is closely watching market developments and will focus on steps to create a strong economy.

Government officials in South Korea and Japan are taking steps to address the impact of the US midterm elections on their economies. South Korea's finance and economy minister, Lee Hyoung-il, held a meeting to discuss the impact of the US midterm elections on the nation's economy. The ministry assessed that an impact on global markets "cannot be ruled out" and that they would proactively devise measures to prevent overreactions in the Korean stock market.

Theodore Shou, partner at asset management firm Yiyi Capital in Hong Kong, believes that the market is moderating itself after a hype earlier this year. He notes that Asian tech stocks have become more closely correlated with their US counterparts than ever before. Some market participants may be banking on a Democrat-led Congress to slow the pace of interest rate hikes, lowering the cost of borrowing, which could help boost both tech and non-tech equities.

Analysts expect global markets to remain sensitive to changes in tech and monetary policy as traders await the winners of the US midterm elections to take office early next year. Andrew Sullivan, who writes about Asian equities, notes that markets dislike uncertainty and are taking a step back to assess the situation. The recent volatility in AI stocks underscores the growing uncertainty among investors, and it remains to be seen how the market will react in the coming months.

Key points

• The US midterm elections have raised concerns about the future of AI investments.
• AI-related infrastructure investment drove nearly all observed US GDP growth by the end of last year.
• Global markets are expected to remain sensitive to changes in tech and monetary policy.