IBM survived Washington and still lost the layer that mattered. Wall Street now fears the same fate for AI: the Nasdaq in correction, Seoul halting trades, CoreWeave’s default insurance at a record. Congress may not stop the race. Whoever controls the power, chips and credit may decide it instead.
Wall Street’s post-election relief gave way to a sharp AI sell-off last night, as investors weighed construction delays, borrowing costs and political scrutiny. With chipmakers leading the losses, the question is becoming more urgent: which businesses can afford to wait for the promised returns?
America’s midterm verdict puts the AI boom under fresh scrutiny. As Democrats prepare to take Congress, markets are weighing tighter infrastructure rules, financing risks and enduring trade tensions against the possibility that political restraint could make the investment cycle more sustainable.
IBM survived Washington and still lost the layer that mattered. Wall Street now fears the same fate for AI: the Nasdaq in correction, Seoul halting trades, CoreWeave’s default insurance at a record. Congress may not stop the race. Whoever controls the power, chips and credit may decide it instead.
In November 1980, eleven years into a federal antitrust case, IBM struck a deal with a young software firm for an operating system that firm did not yet own. IBM kept the machine. Microsoft kept the right to license its software to everyone else, and by January 1993 it had passed IBM in market value. Historians still argue how far the lawyers restrained IBM. Few dispute what it lost: the layer that mattered.
This week Wall Street turned that lesson on artificial intelligence. Who holds the decisive layer, now that Washington is watching?
Democrats won both chambers of Congress on Tuesday, with at least 54 Senate seats. Markets cheered for a day. On Thursday the Nasdaq fell 5.52 per cent into correction, the S&P 500 lost 4.36 per cent and the Philadelphia chip index dropped 12.25 per cent. By Friday morning Seoul had tripped its eleventh circuit breaker of the year, an automatic trading halt, and the Nikkei had fallen well below 60,000.
“We are now seeing something of a buyers’ strike in tech.” - Keith Lerner, chief investment officer, Truist, to Reuters
Five forces drove that strike, not all equally dangerous. Politics was the catalyst in a slide already a month old: Texas governor-elect Gina Hinojosa pledged a moratorium on new data centres in a state Wells Fargo says holds 27 per cent of planned US capacity. Crowding supplied the size, as hedge funds rushed to protect the year’s gains. Earnings offered no shelter: AMD’s outlook beat forecasts and its shares fell 17 per cent. Machinery amplified the fall, with leveraged funds expected to sell about $47 billion into the close.
CoreWeave’s default insurance, which pays out if a borrower fails, hit a record 1,267.9 basis points in what Bloomberg called a broad-based credit slump. Does that threaten the financial system? Not so far. Treasuries rallied, and Apple sold $7.5 billion of bonds on the day. Stress is concentrated in AI-linked borrowers, which suggests to us capital realigning around a new balance of power, though Thursday’s junk-bond spreads are still to come. Nor is the froth where it was in 2000.
Before the rout FactSet put S&P 500 valuations on expected profits below their five-year average. Today’s excess lives in financing, and in ten stocks making up 39 per cent of the S&P 500.
The dot-com years counsel humility: the Nasdaq lost 77.9 per cent from its 2000 peak and needed 15 years to recover. Yet the fibre-optic cable outlived its financiers, so fear and opportunity travel together. Michael Burry cashed in a quarter of his bets against chip stocks, while Goodman and Digital Realty raided Australia’s NextDC in a move its board called opportunistic.
Will the new Congress halt the race? It sits in January, facing Donald Trump’s veto. Independent Bernie Sanders wants a national moratorium, while Democrat Mark Warner has called that idiocy, warning China would move quicker. Republicans make the same case, and Trump blames Democrats for the market’s fall. The warnings cut both ways.
“Texas will become more like California if they succeed in halting all new investment into AI.” - Ted Cruz, Republican senator for Texas, on his Verdict podcast, 4 November
But the debate extends beyond investment at home. Washington is also divided over how tightly it should control the advanced technology reaching China.
“Trump is handing China the technology it needs to win the AI race.” - Chuck Schumer, Senate Democratic leader, on chip exports, September, via Roll Call
History allows either ending. In 1958 a Democratic Congress and a Republican president answered Sputnik with NASA; in 1971 another killed the supersonic airliner over Richard Nixon’s objections. Congress tends to accelerate when it sees a rival and to brake when the bill lands at home. Data centres now present both, and the nearer brake may sit with governors and county boards.
Asia is not waiting. SemiAnalysis counts over 24 gigawatts of data centre capacity in China against 56 expected in America by year-end, yet finds China short of chips and America short of power. Beijing, Reuters reports, is withholding approval for about 600,000 Nvidia H200 processors and has blocked SoftBank’s $5.4 billion purchase of ABB’s robotics arm. Seoul plans 8.4 gigawatts of data centres by 2029 and Tokyo targets more than ¥100 trillion of AI and chip investment by 2041.
Beyond Thursday’s close, direction is a coin toss: the Nasdaq sits below its 200-day trend line, while the S&P 500 holds just above its own. Friday’s US payrolls come first, then inflation data and CoreWeave’s results on Tuesday, when China’s pause on rare-earth controls lapses unless Beijing publishes the extension Washington announced, and Nvidia on 17 November.
The only certainty is the contest itself. IBM, after all, saw Washington drop its case in January 1982, by which time the layer that mattered had slipped away, and the AI race may turn the same way, decided less by whether Congress can stop the build than by who controls the power, chips and credit that remain scarce once it starts asking questions.
Get the stories that matter to you.
Subscribe to Cyber News Centre and update your preferences to follow our Daily 4min Cyber Update, Innovative AI Startups, The AI Diplomat series, or the main Cyber News Centre newsletter — featuring in-depth analysis on major cyber incidents, tech breakthroughs, global policy, and AI developments.
Wall Street’s post-election relief gave way to a sharp AI sell-off last night, as investors weighed construction delays, borrowing costs and political scrutiny. With chipmakers leading the losses, the question is becoming more urgent: which businesses can afford to wait for the promised returns?
America’s midterm verdict puts the AI boom under fresh scrutiny. As Democrats prepare to take Congress, markets are weighing tighter infrastructure rules, financing risks and enduring trade tensions against the possibility that political restraint could make the investment cycle more sustainable.
Even SpaceX will lease its newest chips. As October's credit squeeze hit AI, Peter Diamandis saw two bubbles: the technology and its financing. The AI Diplomat asks who becomes the second owner of the machines when debt-financed compute changes hands, and whether Australia will own or merely rent.
Alphabet lost $500 billion in a day, Amazon slid after hours and Seoul’s Kospi fell 4 per cent as the AI build outgrew the cash that funds it. Lenders still queue for Microsoft, while shareholders punish the cash burners. Washington beat Moscow with public money. Against Beijing, it is borrowing.
Where cybersecurity meets innovation, the CNC team delivers AI and tech breakthroughs for our digital future. We analyze incidents, data, and insights to keep you informed, secure, and ahead. Sign up for free!
