The chip selloff triggered by the Democrats’ midterm sweep is likely to deepen in the coming days as investors price in higher energy and financing costs for the AI buildout, though indiscriminate selling now risks punishing the sector’s strongest companies alongside its weakest.
The warning from Nigel Green, CEO of deVere Group, one of the world’s largest independent financial advisory organisations, comes as the Nasdaq Composite drops 5% on Thursday, falling into correction territory more than 10% below last month’s record and erasing Wednesday’s rebound.
Nvidia and Broadcom each lose 7%, Oracle falls close to 5%, and Qualcomm slumps 9% as a disappointing outlook overshadows better‑than‑expected results.
He says: “Chips are getting smashed, and this is broadly the reaction we flagged before the vote.
“The market now has to price something it’s largely ignored for two years, which is political resistance to the physical side of AI.
“Power, water, land and the cost of financing all of it via borrowing suddenly look less certain. I’d expect this repricing to take more than a session or two.”
Democrats now hold comfortable majorities in both the House and the Senate, along with key governorships won partly on pledges to rein in power‑hungry data centres.
US electricity costs have risen around 5% over the past year, and voters faced 34 ballot measures tied to data centres this cycle.
Nigel Green says: “Two worries are driving this. If states force data centres to carry more of their own grid and water costs, the economics of each project shift. And much of this buildout is financed with debt.
“When approvals and power connections become less certain, lenders are likely to want a bigger premium to fund them, and the most leveraged operators would feel it first. Both concerns look legitimate to me.
“The open question is how much of the worst case is already in the price.”
The steepest losses fall on specialist cloud operators renting out AI computing power, with some down between 12% and 17%.
Consumer staples, healthcare and utilities move higher as money appears to rotate toward defensive sectors.
The deVere CEO comments: “Some Democratic states will probably try to slow approvals.
“At federal level, President Trump still holds the veto pen, which in my view makes sweeping national restrictions difficult.
“Governors also face a trade‑off, since these sites can bring construction jobs, permanent jobs and tax revenue. I suspect some will look for terms rather than outright bans, but local opposition has proved stubborn and could harden further.”
Valuations complicate the bearish case. Semiconductor shares trade at roughly 13.5 times forward earnings, below the broader S&P 500 at around 18.5, and analysts expect sector earnings to more than double this year.
Those forecasts, however, were drawn up before this week’s political shift and may face revision.
The Nasdaq 100 had already shed more than $2.5 trillion in October before the latest slide.
Nigel Green says: “Selling the strongest chipmakers as though AI demand had evaporated looks overdone to me.
“What I believe is changing is the market’s tolerance. Companies with heavy debt, thin margins, and projects waiting on a grid connection look most vulnerable.
“Those with solid balance sheets and earnings they can actually show are likely to be judged very differently once the panic subsides.”
He says: “I’d expect volatility to persist for some time, and it could intensify if further earnings disappoint.
“Further out, divided government has often proved tolerable for equities, and AI investment plans remain substantial. A recovery later in the year is indeed very possible, but it would depend on earnings holding up and on policy proving less hostile than investors currently fear.”
The deVere CEO concludes: “For two years, the AI trade has been valued on chips, software and demand.
“From this week, it may also have to be valued on permits, power tariffs, borrowing costs and political risk.
“I suspect markets will need some time to work out what that’s worth, and the answer is unlikely to be the same for every company.”
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