NASDAQ 100 leads Wall Street sell-off as AI trade unravels

AI stocks extend losses as Democratic midterm sweep fuels moratorium fears.
NASDAQ erases Wednesday's advance as investors shift towards defensive sectors across the broader market.

Renewed selling in AI-linked shares is driving one of Wall Street's worst sessions in recent memory. With Democrats winning both the upper and lower houses, concerns have intensified that AI data centre projects could again face moratoriums and regulatory pressure.

A sharp sell-off is hitting the AI industry's 'pick and shovel' segment. Fears of spillover into microchips and semiconductors are pushing the wider market lower. The Nasdaq tech index has dropped 5%, or around 1,400 points. Losses in the S&P 500 and Dow Jones Industrial Average stand at roughly 3% and 2%, respectively.

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Incoming governors in Texas, Georgia and Ohio could impose regulatory obstacles on a substantial share of planned data centre capacity, according to Fitch. The NASDAQ 100's largest companies either build that capacity or supply it.

5-minute chart: Nasdaq 100

Nasdaq: key questions

Nasdaq: the exchange and its origins

By 1991, the Nasdaq accounted for 46% of the total US securities market. This US-based stock exchange began as an electronic system for stock quotations, initially covering only over-the-counter (OTC) stocks before developing into an exchange. In 1998, it became the first US stock exchange to offer online trading. It also compiles several indices, including the Nasdaq 100 and its broadest benchmark, the Nasdaq Composite, which covers all 2,500-plus stocks listed on the Nasdaq.

100 non-financial companies: the Nasdaq 100

100 non-financial companies listed on the Nasdaq stock exchange make up the large-cap Nasdaq 100 index. These constituents represent only a small proportion of the exchange's thousands of stocks but account for over 90% of its movement. Each company's influence is weighted by market capitalisation. Technology-focused businesses feature prominently, alongside companies in other industries and those based outside the US. Since 1986, the Nasdaq 100 has delivered an average annual return of 17.23%.

Nasdaq 100: trading routes

The Nasdaq 100 can be traded through several instruments. Contracts for Difference (CFD) are available through most retail brokers and spread betting platforms. For investors with a longer-term horizon, Exchange-Traded Funds (ETFs) offer share-like trading while tracking the index, removing the need to buy all 100 constituent companies. Invesco QQQ Trust (QQQ) is one such ETF. Traders can also use Nasdaq 100 futures contracts to speculate on the index's future direction. Options confer the right, without imposing an obligation, to buy or sell the Nasdaq 100 at a specified future price, known as the strike price.

Nasdaq 100: Key Market Drivers

Corporate earnings are the main influence on the Nasdaq 100, among a range of drivers. Quarterly and annual reports show the combined performance of its constituents. Macroeconomic releases from the US and elsewhere also shape investor sentiment, with positive sentiment supporting gains. Interest rates set by the Federal Reserve (Fed) affect the index through borrowing costs, given many companies' heavy reliance on credit. Inflation can therefore be another significant driver, alongside other indicators that inform the Fed's decisions.