Democrats Swept Congress and Asia's AI Chip Stocks Plunged on Fears of a US Data Center Crackdown

Markets had treated the AI buildout as close to untouchable. Then Democrats won both the Senate and the House in Tuesday's midterms, and investors had to price in AI rules, data center moratoriums and tax changes for the first time.

The hit landed hardest in Asia, on the chipmakers that sell into the American buildout. Democrats took Senate races in South Carolina, Texas and Ohio and flipped districts long considered safe for Republicans, a major setback for President Trump. They do not have the two-thirds majority needed to override his veto.

A violent session in Tokyo and Seoul

Japan's Nikkei 225 fell more than 4% during Wednesday's session, briefly sliding toward 60,000, as AI and semiconductor shares sold off on fears of stricter rules. It closed down 1.42% at 62,188.63. The Topix lost 0.89%. Japanese markets had been shut on Tuesday for a holiday, so the selling arrived all at once.

South Korea's Kospi swung even harder. It opened higher, flipped to a loss of roughly 4% with a low of 5,421.72, then rebounded to close up 0.62% at 5,683.80. Foreign investors were net sellers of about 2.5 trillion won. Samsung SDI jumped 11.57% and LG Energy Solution rose 5.03% on hopes for renewable and battery support, while Samsung Electronics closed down 0.68%. Samsung Electronics and SK hynix together make up more than half of the Kospi's market value.

Taiwan's benchmark lost about 2.5% at one point, the MSCI Asia Pacific index fell as much as 2.3%, and Singapore's benchmark moved close to a correction.

The shock spread well beyond Asia. The dollar fell to a one-month low, cryptocurrencies dropped on the prospect of tougher regulation and bonds rallied. Nasdaq futures skidded more than 2% before trimming losses, and S&P 500 futures later turned slightly higher.

What investors are afraid of

"Tighter regulatory scrutiny of technology and AI companies along with the higher likelihood of political gridlock beckon with a Democrat sweep," said Prashant Newnaha of TD Securities.

The specific fears are about data centers. Some Democratic lawmakers have proposed ending the 100% bonus depreciation tax break for data center investment, and others have floated taxes on AI use and profits. Sen. Elizabeth Warren has said taxing AI would be a priority if Democrats won back the Senate.

Kim Seok-hwan of Mirae Asset Securities pointed to Texas. "If Texas declares a moratorium on data centres, as New York did, projects could face further delays," he said. Slower construction could also postpone the moment hyperscalers turn commitments to customers such as OpenAI and Anthropic into cloud revenue, which would weigh on demand for high-bandwidth memory, the Korean chipmakers' prized product.

The stakes are bigger than a few chip stocks. AI investment did much of the lifting in the last GDP report before the vote, which showed the economy growing at a 3.4% pace with equipment spending up more than 20%.

Why the dip got bought

Plenty of analysts think the panic ran ahead of the politics. OCBC's Moh Siong Sim noted that even with a sweep, "it is still difficult to pass legislation at the federal level," given Trump's veto. The Bank of Korea's New York office said the result could have "a limited impact on AI regulation and the pace of related investment."

Dip buyers seemed to agree, clawing back most of the day's losses by the close. The swing still showed how jumpy the AI trade has become.

Some offers on this page may be paid placements or contain affiliate links.