Technology shares suffered a sharp drop last week, marking the third major correction in recent months. Daily Maverick reported that the Nasdaq index fell 5.5% on Thursday, closing at its lowest point of the day in a decline the outlet compared to the dot-com era and the 2008 financial crisis. This slump followed an initial rise on Wednesday, which had been sparked by the US midterm elections. The Nikkei average has also entered a bear market, falling over 20% from its June peak, while South African stocks on the JSE finished the week higher, showing a contrast with US and Asian markets.

The primary trigger for the sell-off was the Democratic performance in Tuesday’s vote, which Daily Maverick described as a rejection of the infrastructure projects supporting the AI boom. In 40 of 41 local votes on data-centre development, US voters turned against Big Tech expansion. This political shift has raised worries about delays to new projects, which could hurt revenue forecasts for an industry heavily reliant on borrowed funds to finance its growth.

Daily Maverick notes that the AI investment model shows signs of an unsustainable cycle, including high valuations and a gap between projected future income and current cash flow. The Bank for International Settlements found that nearly 29% of AI firms’ investment value goes into other AI businesses, with over half of funding coming from other AI firms. This circular financing makes it hard to tell the difference between real demand and demand funded by the industry’s own money.

TS Lombard warned in October that a major unwind of the AI boom could cut US stock values by at least 30% and create up to $200 billion in credit losses. Daily Maverick added that rising US Treasury bond prices indicate investors are seeking safety, with yields down nearly 40 basis points from their October peak. The sector now faces further risks from possible Federal Reserve rate hikes into 2027 and leadership questions around Nvidia CEO Jensen Huang, who is seen as central to the industry’s financial structure.