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Written by｜Zhou Xiaoyan

Edited by｜Xu Qingyang

The AI investment boom has encountered a severe setback.

On November 5, local time in the United States, the three major US stock indices collectively plummeted. The Nasdaq 100 index fell by 6.4%, with a single-day market value evaporation of about $2.3 trillion; the S&P 500 index dropped by 4.4%, marking the largest single-day decline since April 2025.

As of the close on November 5, local time in the United States, the decline in the three major indices is sourced from FactSet

Technology stocks became the hardest-hit area for sell-offs. Chip companies like Nvidia and AMD saw their stock prices plummet, while the collective market value of the "seven tech giants" shrank by over a trillion dollars overnight. The downturn spread to the storage, cloud computing, and data center supply chains, and the funds managed by "Cathie Wood" were also not spared.

Behind this sell-off, the market's attitude towards AI investment is changing.

In the past, the continually expanding capital expenditures of tech giants were seen as proof of strong AI demand, which also supported the high valuations of companies in the supply chain. Now, as spending scales continue to rise, investors are starting to ask: when will the hundreds of billions of dollars in AI investments translate into revenue and profit?

The market's focus is shifting from pursuing the scale of AI investment to scrutinizing the returns on those investments.

01 Tech stocks plunge collectively, seven giants lose over a trillion in market value

On November 5, the tech stock sell-off spread from chip companies to storage, server, and data center operators.

The Philadelphia Semiconductor Index at one point fell nearly 11%, marking the largest intraday drop since March 2020, and ultimately closed down 5.23%.

As of the close on November 5, local time in the United States, the decline in the semiconductor index is sourced from FactSet

Among chip stocks, AMD dropped 17.3%, Micron fell over 17%, Nvidia declined by 9.3%, and companies such as Broadcom, Intel, Arm, and Marvell also saw declines. The storage and hard drive supply chains are similarly under pressure, with SanDisk, Seagate, and Western Digital all experiencing noticeable drops.

AI infrastructure-related companies were also not spared. Server manufacturer Dell, cloud computing service providers CoreWeave and Nebius, as well as data center operators IREN and Applied Digital were all affected. Data center power equipment supplier GE Vernova fell by 7.5%, indicating that the sell-off has spread to the energy and infrastructure sector.

The so-called "seven tech giants" also faced sharp declines. The total market value of Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla shrank by about $1.04 trillion in one day. Among them, Nvidia fell 9.3%, and Tesla dropped 10.8%, leading the declines; Microsoft fell 3.6%, Meta dropped 4.0%, and Amazon and Alphabet declined by about 2.2%, while Apple fell by 1.5%.

Individual stock performance was not all down. Advertising technology company AppLovin rose by about 31% after reporting strong earnings and providing a forecast above market expectations. Funds are still searching for companies supported by performance, but stocks closely associated with AI infrastructure investments, with high valuations, have faced greater pressure.

02 Why did AI trading suddenly lose momentum?

The immediate trigger for this round of sell-offs was the results of the US midterm elections.

The Democrats won control of both the House and Senate in this election, achieving key victories in crucial data center industries in Texas and Georgia. Some Democratic candidates had previously explicitly advocated for pausing or restricting data center development. The market worries that as political forces opposing data center construction strengthen, future related projects may face stricter regulations, longer approval periods, and even forced delays.

Moreover, this round of tech stock plummeting overlapped with three noteworthy factors: doubts about AI investment returns, rising financing risks for data centers, and previously overly concentrated market trading.

First, AI investment is increasing, but the returns remain unclear.

Microsoft, Amazon, Alphabet, and Meta continue to increase capital expenditures, with large amounts of money flowing into data centers, chips, and power facilities. In the past, the market viewed these expenditures as proof of robust AI demand, leading to rising valuations for relevant enterprises.

However, building data centers requires significant upfront investment, and those expenditures do not immediately convert into revenue. As capital spending continues to rise, investors are beginning to worry whether the revenue generated from AI operations can cover the construction costs and what pressure continued expansion will place on corporate cash flow.

Second, AI infrastructure construction is increasingly reliant on external financing.

Tech giants have sufficient cash reserves, but some data center operators and new cloud service providers need to build computing facilities through debt or equity financing. These projects involve large investment scales and long recovery periods, making them sensitive to financing costs and construction timelines.

If financing conditions tighten, some projects may be forced to delay or scale back. The growth expectations for suppliers of chips, servers, storage, and energy equipment could also be affected as a result.

Third, concentrated trading in AI stocks has amplified the market's downturn.

Over the past few years, AI-related stocks have continued to rise, attracting a substantial amount of concentrated buying. Some investors also increased their positions using leveraged trading.

When the market began worrying about investment returns, concentrated selling could trigger a chain reaction. Adjusting leveraged positions, risk hedging, and selling off systematic trading strategies could further exacerbate stock price volatility.

Interactive Brokers' Chief Strategist Steve Sosnick pointed out that investors had previously not rushed to buy protection against declines, but following the market's sudden turn, demand for hedging rapidly increased.

There remains a divide on Wall Street regarding the future trajectory of AI trading.

David Rosenberg, founder of Rosenberg Research, worries that if data center construction slows down, the growth expectations for chip and equipment suppliers will also be impacted. Mohamed El-Erian, Chief Economic Advisor at Allianz, believes the market may be overreacting to AI risks, and short-term stock price fluctuations do not directly negate long-term demand.

Currently, tech giants are still increasing AI investments, and demand for cloud computing and computing power has not suddenly disappeared. However, investors are beginning to reassess how much profit these expenditures will ultimately generate and whether current stock prices have already reflected future growth.

03 "Cathie Wood" increases positions against the trend

As tech stocks plummet, "Cathie Wood", who focuses heavily on high-growth technology companies, also faced the impact.

Her Ark Innovation ETF (ARKK) has a highly concentrated portfolio. As of November 5, Tesla, SpaceX, Tempus AI, and Circle accounted for more than 28% of the fund's assets. With tech stocks facing a sell-off, the fund is under significant pressure from declining net asset value.

However, Wood did not stop buying. On November 5, Ark Invest's three ETFs collectively purchased 348,400 shares of SpaceX-related assets, with the estimated transaction amount around $47.4 million, while also selling about 46,200 shares of Alphabet stock.

Wood's fund bought $39.1 million worth of SpaceX stock on November 5

The market is reassessing the valuations of high-growth technology companies, but Wood is still positioning herself against the trend. At least from the transactions on that day, she did not fully exit high-growth assets due to this round of declines.

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