What’s going on with the stock market?

It's Consider This, where every day we go deep on one big news story. Today, understanding what is going on with the stock market. Democrats won big during this year's midterm elections. When I am governor, I will issue a moratorium, a ban on all data center approvals until laws can be passed by the legislature to protect Texans. Democrats like Texas Governor-elect Gina Hinojosa ran on a platform to curb the building of data centers which are at the heart of AI development. So did South Carolina Senator-elect Dr. Annie Andrews. I'm calling for a two-year national pause on new AI data center development. I want to stop data centers from passing on their costs to South Carolina families. The stock market soared on Wednesday. By Thursday, it tanked. The reason, a big sell-off in AI shares that sent the tech-heavy Nasdaq down more than 5% and wiped out more than $2 trillion. There is some concern regarding AI regulation and fears that there could be far more regulations coming to AI technology as well as a pushback on the build-out of data centers across the country. David Bush is chief investment officer of Trajan Wealth. He spoke to NPR Wednesday. By Friday, markets recovered a bit, but investors are still jittery. Consider this. The AI boom has been a major boost to the stock market. But investors seem concerned that the blue wave will bring increased scrutiny of data centers and the AI they support. After the break, we take a closer look at what's going on. From NPR, I'm Mary Louise Kelly. It's Consider This from NPR. It has been a bumpy ride for AI and tech stocks this week. AI shares bounced back today. That was after suffering a huge loss yesterday that wiped out more than $2 trillion in value. Big democratic victories have raised big fears about the outlook for AI, which, of course, is a game-changing technology, and tech companies are pouring a ton of money into developing it. It's not clear, though, if we are in the right direction. We're in the middle of a tech bubble that is about to burst. Let's bring in NPR senior economics and finance editor Rafael Nam and NPR tech correspondent John Ruich. Hey to the both of you. Hey there. Hey. Rafael, you start. AI shares did recover today. Let's underscore that. But investors are still feeling queasy. Yeah, I think the scale of the losses yesterday was pretty staggering. And not the kind you see, the kind you only see every once in a while, to be honest. And investors are still a little shaken. I mean, Traders had already been feeling very uneasy all year long about the AI trade. And there's a lot of money riding on AI. And a lot of concern. Yeah. And a lot of concerns about whether all of this is going to pay off. And data centers are critical to AI companies. So when you have a wave of Democrats being elected, talking about things like creating moratoriums or slowing down the development of data centers, investors can freak out. John, dig into that, if you would. Explain the freak out. Yeah. So there has been. There has been this boom in construction in AI data centers. There's trillions of dollars committed to more of them. But people are nervous about them, about the water and electricity costs, about what it means for jobs. I mean, just last night, I was at a town hall in San Jose, California. This is the heart of Silicon Valley, like home turf for AI. And there are plans for as many as 13 new data centers there. Residents like Justin Brown say things are just moving way too fast. Like, let's actually have a debate and let's talk about this and see if there's some sort of common ground. So. Those residents can get something out of this. Yeah. And of course, data centers were on the ballot nationwide on Tuesday, right? We saw candidates elected in places like Texas, Ohio, South Carolina, who've spoken out against data centers. There were also dozens of local measures across 13 states that blocked or restricted future data center development. So clearly a consequential issue for a lot of people. So just to connect the dots super explicitly, why all these votes against data centers are making investors so nervous? Yeah. The election. The outcome, in a nutshell, suggests that it's going to be harder going forward for AI companies to build data centers. And that's a problem for these companies. Here's why. They've been investing eye-watering amounts of money in the computing power to train new AI models and to make AI work. That means data centers full of high-end chips. There's a shortage of that computing power already. And if leading AI companies don't build more data centers, then their plans to build better AI, their business plans, get gummed up. And let me break in here, John, because you and I have been talking about this, right? But this is exactly what investors are worried about. If AI companies can't develop AI models as fast as they want to, that means they may not see the profits they're promising markets. So investors are thinking, wait, hang on here. What's it mean for me? How soon am I going to make my money here? Exactly. And so much of the stock market now is riding on this. And it actually could become a bigger deal than that even. Today, AI is just a huge part of the whole US economy. Here's Libby Cantrell, head of public policy at the Investment Management, management company, PIMCO. The US economy is an AI economy. So if the AI story starts to wobble, you just think from a macro perspective, that could be a headwind for US economic growth. So, I mean, Raphael, what happens then if there is more than a wobble? Yeah, that's the big concern in Wall Street right now. Listen, just about everybody believes there's bound to be some pain in developing AI. Like there is for many new technologies. There was the Doctrine. Com bust at the start of the internet, for example. But AI companies are not only raising massive amounts of debt. A lot of them are also investing in each other and doing business with each other. So an example, take NVIDIA, the big chip company. NVIDIA has also invested some money in startups like OpenAI and Anthropic. And those two startups, in turn, are buying massive amounts of chips from NVIDIA. Now, this sort of circular arrangement works fine when things are going well. But imagine what could happen. If one company gets into serious trouble. And that's where it can set off a chain reaction. That investor's fear could spark a global financial crisis. Like the one we saw in 2007. Yeah, and there's this kind of interesting contradiction baked into the promise of AI also. You know, we know it's powerful, but we still don't know exactly the best ways to use it. I mean, these companies are all placing huge bets on the idea that some of the best use cases will be things that we can't imagine today. Like that AI will help us. And ways that we didn't know were possible. And that's just a gamble. It might take years for breakthrough applications to appear and to make money. It might never happen. And the possibility of a data center slowdown just complicates that picture. So to both of you, Rafael, you first. What can investors expect going forward? Yeah, at the end of the day, we just don't know what will happen. Voters have spoken, but we need to see what elected officials will actually do. One big thing to watch, though, will be the upcoming IPO by Anthropic. That big, huge. Huge startup I was mentioning. Yeah, I agree. We should note that Anthropic is a financial supporter of NPR. Its IPO, expected this month, will be a key test for the sort of health of the AI trade, right? The price that those shares sell at on day one and after could tell us a lot about investor appetite for companies in AI. Yeah, so, John, we'll see what happens. And maybe to end this on a more positive note here, so we don't end up depressing everybody. A lot of experts we talked to. I do say the economy and the markets may have become too dependent on AI. So if we see a bit of a pullback in data centers and in markets, it may be painful, but it could ultimately help rebalance things. And that's not a bad thing. Going back to the dot-com bust I was mentioning earlier, it was painful, but it got rid of the weak companies like Pets.com. It got rid of the financial froth. And today, really, you cannot imagine a life without the Internet. And here's Rafael Nam and John Ruich. Thanks, you two. Thank you, Mary-Louise. You're welcome. This episode was produced by Tyler Bartlam and Karen Zamora with audio engineering by Ted Meebane. Our director is Jonas Adams. It was edited by Cara Platoni and Tenbeat Ermias. Our executive producer is Courtney Dorning. Thank you to our Consider This Plus listeners who support the work of NPR journalists and help keep public radio strong. Supporters also hear every episode without messages from sponsors. And unlock bonus episodes of Consider This. You can learn more at plus.npr.org. I'm Mary-Louise Kelly.