Is the AI bubble bursting? That question was on the minds of millions of investors Thursday, when the Nasdaq Composite (NASDAQINDEX:^IXIC) had one of the worst days in its history, falling 5.5% as fears spread that a political backlash could stifle the AI boom following the midterm elections. Did Nvidia miss out in 2009? This rare signal flashes again. In 2009, a “double down” signal appeared for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company that is 1/100th the size of Nvidia. Continue » Investors believe that election winners in Texas and elsewhere will impose significant restrictions or even outright bans on data centers, which became a lightning rod during the campaign. After chip stocks were among the few losers on Wednesday, they plunged on Thursday, with the VanEck Semiconductor ETF losing 11.2%. Even industry leader Nvidia lost 9.1%, and the drop triggered a broader sell-off across the stock market, with all 11 sectors falling, including defensive ones like utilities and consumer staples. Image source: Getty Images. What’s Happening in the Data Center Sector AI infrastructure stocks began wobbling a few weeks ago, starting with a chart showing neocloud operator CoreWeave’s (NASDAQ:CRWV) bond yields had risen as much as 15%, and concerns about a potential default sent the stock tumbling. Earnings reports from large hyperscalers were received similarly, as investors became concerned about rising capital expenditures and negative free cash flow, even as these companies continue to grow rapidly and are hugely profitable. Then the election happened, and now fears of a slowdown in data center construction have led investors to flee AI stocks. Stock market reactions to elections are famous for being hasty and often fleeting. Stocks plunged following the Brexit decision before recovering in the following days, and stocks plunged overnight when President Trump was first elected before turning green the next day. This seems like a similar reaction. Tech stocks initially fell Tuesday night before the Nasdaq rose Wednesday. The response is understandable since data centers have been a major talking point during the campaign, but the sell-off seems like an overreaction. Gina Hinojosa, governor-elect of Texas, campaigned for a temporary moratorium on data centers and reasonable guidelines, such as a ban on data center subsidies. However, she is not radical, telling CNN: “We will have laws to protect Texans and we need to stop what we are doing with data centers until we have those protections.” In the worst-case scenario, with a significant slowdown in data center construction in the US, most industry observers believe activity would simply shift overseas, meaning industry growth would not be significantly affected. In an interview with Motley Fool, Jason Child, CFO of Arm Holdings (NASDAQ:ARM), explained his thinking on the matter, saying, “Let’s say (data centers) all slow down. Do we think demand for AI will slow down? I think generally most people say no. The genie is out of the bottle.” Child also said he was generally skeptical of any political reaction and said bipartisan interest in economic growth was too strong for there to be a significant slowdown in construction. He also noted that Arm could still benefit from a slowdown in data center construction, as Arm’s chips excel in performance per watt, which would be in greater demand if data center construction were artificially limited. What it means for investors Predicting where the data center debate will go from here isn’t easy, but Child is right that demand for AI is strong and unlikely to be affected by a slowdown in capacity growth. Meanwhile, many top AI stocks look cheaper than ever. Nvidia (NASDAQ:NVDA) now trades at a forward P/E of less than 20 and nearly doubles its revenue every quarter. Micron (NASDAQ:MU), the leader in memory chips, trades at a forward P/E of less than 4. Many of these AI stocks have already soared this year, so the pullback needs to be seen in that context, but like “Liberation Day” and other political issues that have rattled the markets, it seems likely that this response will be an overreaction and won’t be an issue over the next year. 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Don’t miss the latest Top 10 list, available on Stock Advisor, and join an investing community built by individual investors for individual investors. See the 10 stocks » *Stock Advisor returns as of November 5, 2026. Jeremy Bowman has positions in Arm Holdings, CoreWeave, Micron Technology, and Nvidia. The Motley Fool has positions and recommends Arm Holdings, Micron Technology and Nvidia. The Motley Fool has a disclosure policy. The Nasdaq plummets 5%. What the Data Center Crash Means for Investors was originally published by The Motley Fool
