AI sector rebounds after brief Nasdaq dip

The recent AI selloff sparked headlines after the Nasdaq 100 fell 6.4% on Thursday, marking its steepest decline since March 2020. Traders blamed a newly Democratic Congress for threatening the sector’s rapid expansion.

Nasdaq swing and market reaction

By Friday, the index had recovered, posting a 3% gain with chip makers leading the rally. Nvidia Corp. (NVDA), down about 4% after its board launched an independent probe into CEO Jensen Huang’s alleged ties to a Chinese intelligence source.

Analysts interpreted the brief plunge as a market overreaction to ballot measures aimed at curbing data-center growth. Voters in 46 of roughly 50 initiatives voted to restrict new facilities, a result many saw as a signal of regulatory headwinds for AI infrastructure.

Political factors and data centers

Legendary investor Louis Navellier challenged that view on his podcast, calling Thursday’s decline “ridiculous” and “machine selling.” He argued that the political climate had been misread and that the sector’s fundamentals remained sound.

In Texas, the governor-elect’s pledge to pause data-center approvals threatened a state tax break that costs the budget about $1.3 billion annually. Navellier noted that projects already permitted will still be built, extending the pipeline through 2027-2028.

Data-center revenue is already a major fiscal driver in Democratic strongholds. Loudoun County, Virginia, says it has $1.2 billion in property tax revenue, or 39% of the county’s entire budget. This highlights the industry’s local economic importance.

Because local governments depend heavily on these taxes, politicians are unlikely to jeopardize existing facilities. The revenue stream creates a built-in incentive to keep the sector operating, reducing the risk of abrupt policy reversals.

The federal picture adds another layer of stability. Although Democrats will control both chambers in January, the outgoing president retains veto power, and a two-thirds majority would be needed to overturn it. This gridlock makes sweeping nationwide restrictions on data centers improbable.

Historical precedent supports the argument. In 1995, when Republicans seized Congress and clashed with President Bill Clinton, the internet build-out continued unabated, and the S&P 500 rose 34% that year.

Nevertheless, a new variable looms: the cost of money. A strong jobs report added 165,000 jobs in October, pushing the odds of a rate hike at the Fed’s December meeting to 82% according to the CME Group’s FedWatch tool.

Employment trends

Meanwhile, the latest labor figures showed a surge in hiring that outpaced economists’ expectations. The increase came largely from professional services, with additional gains reported in health care, logistics, and manufacturing.

Louis Navellier will tackle the implications of higher borrowing costs in a new presentation this Thursday, Nov. 12, at 2 p.m. Eastern. He believes the bond market is sending an important warning heading into 2027, and that rising rates could expose weaknesses in some popular stocks.