Breaking: Chip stocks crash as Nvidia loses $400B in AI panic

Nvidia suffered a catastrophic loss of more than $400 billion in market value on Thursday as the semiconductor sector led a broader Wall Street rout. The chipmaker fell 9.2 percent, marking the largest decline among the 30 companies in the Dow Jones Industrial Average. This single-day wipeout underscored the fragility of the artificial intelligence trade, which has driven much of the recent market rally. The selling pressure was not limited to the market leader, as other major names in the industry also saw steep declines.

The damage extended across the entire chip industry, with SanDisk falling more than 22 percent and Western Digital dropping 17 percent. AMD and Micron each lost more than 17 percent of their value, while Intel fell 10.3 percent. These moves pushed the Philadelphia Semiconductor Index down by more than 12 percent for the day. The index has now fallen more than 30 percent since the beginning of October and stands almost 40 percent below its peak in June.

The iShares Semiconductor ETF fell 12 percent, which represents its worst day since the market breakout in March 2020. This decline marks the worst performance for the index since that time, signaling a significant shift in investor sentiment regarding the hardware that powers AI models. The rout in chip stocks was a primary driver behind the overall market weakness, as investors sought to exit positions in high-growth technology companies.

The broader market reflected this tech-led decline, with the Nasdaq Composite falling 5.5 percent. This was its worst day in 18 months, and the index closed more than 11 percent below the record it set last month. An estimated $2.5 trillion in market value was wiped from the Nasdaq Composite. The S&P 500 fell 4.3 percent, its worst day since April 2025, while the Dow Jones Industrial Average dropped more than 1,800 points, or 3.4 percent, to 51,868.

The catalyst for this sell-off was the Democrats' sweep of the House and Senate in Tuesday's midterm elections. Voters across the country approved dozens of ballot measures aimed at restricting data center development, a move that heightened concerns about the pace of AI infrastructure expansion. In Texas, Democrat Gina Hinojosa won the governor's race after campaigning on an immediate moratorium on new data center construction. This victory, along with wins in other states with large concentrations of planned facilities, has led analysts to question the future growth of the sector.

Investors are now weighing whether tighter state-level restrictions could slow data center construction, pressuring companies tied to the AI trade. This concern collides with broader worries that the huge sums being spent on AI will not pay off, suggesting that AI shares may be in a bubble. Susannah Streeter, chief investment strategist at Wealth Club, noted that fresh panic over the AI trade has hit Wall Street hard. She observed that fears that the vast sums poured into AI infrastructure may not deliver the returns investors have been banking on are now colliding with the prospect of a sharp slowdown in data centre construction.

Neil Wilson, investor strategist at Saxo UK, described the event as a complete capitulation-level event playing out in tech stocks. He stated that the fear is a total momentum unwind as Democrats pace the frontier and kibosh datacentre buildout. Wilson added that while the move looks totally overdone, the nature of sell everything in this market means we need to look for some stability first. Dan Ives, a tech analyst, agreed that there is no way to sugarcoat that Democrats taking control, especially over the Senate, will create some major hurdles for AI and tech legislation in the Beltway over the next two years.

The volatility was captured by the Cboe Volatility Index, which jumped as much as 5.7 points to above 28 about 90 minutes after the opening bell. This was its highest reading since March 31, 2026. By midday, nearly 800,000 VIX call options had traded, which was 3.5 times the 30-day average. Noel Smith, an options trader, said his data says to de-risk, but his gut says this is a blowout that could create a dip-buying opportunity. He noted that the tape looks like a liquidation and that is exactly what it is according to what he is hearing with regards to a hedge fund.

The 10-year Treasury yield fell to 4.83 percent, its lowest since September, as investors bought bonds as a haven. The Magnificent Seven technology companies, which include Apple, Nvidia, and Tesla, shed about $1 trillion in value in the single trading day. Tesla fell nearly 11 percent and SpaceX fell 8 percent, taking more than $300 billion off the value of Elon Musk's companies. The selling spread through every sector of the S&P 500 and gathered pace through the day, erasing the gains made on Wednesday when Wall Street had its biggest daily gain in months.

Analysts are divided on the immediate future of the market, with some predicting a recovery. Gene Goldman, chief investment officer at Cetera Financial Group, said the sell-off had become exaggerated as selling accelerated through the day. He predicted a recovery, noting that when you have a correction in a bull market they are typically short lived. Frank Cappelleri, founder of CappThesis, pointed out that the Nasdaq was higher 12 months after the election in all but one of 13 midterm cycles since 1974, but the caveat is that the path can be a volatile one. The market continues to assess the long-term impact of the new political landscape on the AI sector.