The euphoric relief rally on Wednesday after the Democrats won the midterms gave way to frantic selling on Thursday. Nasdaq (QQQ) entered correction territory by falling 11% below its record high only a month ago.
How much more of a drop will markets take amid the AI bubble popping? A short-lived decline, especially in semiconductors (SOXX), would indicate a bear market. A steady drop that erases more than 2-3 years of the technology stock boom would define the AI bubble popping.
Investors should watch the Magnificent 7 multi-trillion-dollar companies by market capitalization. NVIDIA (NVDA), which is a key supplier of GPU chips for AI servers, fell by 9.26%. Microsoft (MSFT), Google (GOOG), and Amazon (AMZN) also fell. But Tesla (TSLA) dropping by 10.77% is substantial.
The Republicans lost the mid-term election in Texas. Markets did not expect that. They are pricing in the risk of increased regulations. SpaceX (SPCX) and Tesla previously benefited from the government permitting them to build AI infrastructure.
Broadcom (AVGO) dropped by 10.4%, which is comparable to Intel’s (INTC) 10.33% decline. The Democrats might start inquiries into government funding provided to Intel next year. Similarly, Palantir (PLTR) and Oracle (ORCL) dropped for the same reason.
Watch for momentum to reverse from bearish to mildly bullish. If that holds, the sell-off in AI-related names will moderate.
