Elon Musk reacts to Democrat call for AI pause — while $2T vanishes from tech stocks. Are you exposed?
Elon Musk sees a dystopian future for data centers as Democrats head to Washington D.C. in January.
In a recent X post, the Tesla CEO referenced Aldous Huxley’s classic 1932 sci-fi novel, “It’s a Brave New World.” His post was in reference to a comment from Arizona’s Congresswoman Yassamin Ansari that criticized lax restrictions on the AI industry. As Ansari wrote, “Top of the Democratic agenda on day 1 needs to be a pause on advanced AI development, regulation of this out of control industry, and a ban on artificial superintelligence.”
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While AI wasn’t the only issue on voters’ minds in November, data centers certainly contributed to the Democratic Party’s sweeping victory. An October poll from Reuters and Ipsos found that 69% of American adults agree that the U.S. needs “stricter AI regulation.” Registered Democrats were even more likely to have issues with AI, at 80%.
Pew Research Center also found that data center construction is getting increasingly unpopular. Their research showed that the percentage of Americans who view data centers as a danger to the environment jumped from 39% in January to 54% in September. About 50% of Americans now believe living near a data center will raise their energy costs.
Democrats demand more data center moratoriums
With so much controversy around data centers, many Democrats promised stricter regulation on the AI industry on the campaign trail. Vermont’s Independent Senator Bernie Sanders also took to X on Nov. 4 to tout the dozens of AI data center moratoriums that have passed so far. Sanders argues that “Americans don’t want Big Tech oligarchs wrecking the environment, gutting jobs and threatening humanity’s future,” adding a rallying cry for a “NATIONAL DATA CENTER MORATORIUM NOW.”
According to Ballotpedia’s tracking, 40 local ballot measures restricting data centers passed on Nov. 3.
Once Democrats get into Congress, some analysts believe they could introduce policies to slow down the AI industry. For instance, speaking with Reuters, Ed Mills, Raymond James’ policy research manager, said, “The probability of legislation is much higher than people anticipate.”
For his part, Musk suggested an otherworldly way around any new legislation. Amid these calls for reform, the SpaceX CEO hinted he’s setting his sights on the stars for new data center projects. “Data centers in space looking pretty appealing right now,” he posted on X the day after Election Day.
As it stands, Democrats will take 253 seats in the House of Representatives and 54 in the Senate. While that’s not enough to reach the two-thirds vote needed to override any President Trump’s veto, it does give them majorities in both chambers of Congress.
The data center debate triggers a $2 trillion tech selloff
AI-related tech stocks were already pretty weak heading into the midterms. However, on Nov. 5, investors went into full-on panic mode, selling off an estimated $2.3 trillion in tech stocks, according to Bloomberg.
This was the response to investors digesting the Democrats’ resounding victory in the midterms. Bloomberg’s data showed the NASDAQ-100 index fell over 6% on the day, while the Philadelphia Semiconductor Index (SOX) nosedived by 9.2%.
And it wasn’t just large institutions and hedge funds offloading their shares. According to data the firm Vanda Research shared with CNBC, retail investors sold $338 million in single stocks, matching volumes seen during COVID-19 in March 2020.
Although stocks rallied a bit on Nov. 6 with the NASDAQ recovering about 1%, analysts are still wary of giving the all-clear.
Yorkville Ives & Co.’s partner Dan Ives thinks the Democratic control in Washington D.C. will have lasting impacts on the AI sector. As he wrote in a note shared on CNBC, “For tech investors the big focus is will these mid-term elections slow the pace of the planned 800 to 1,000 datacenters across the US fueling the AI Revolution…the answer in our view is a clear YES.”
But that doesn’t mean anyone who owns tech shares needs to follow the herd. In fact, that might be the worst thing to do right now — as you would be realizing your losses by selling shares.
Data compiled by investment management firm Invesco shows it usually takes three months to rebound from a 5% – 10% plunge in the Dow Jones Industrial Average Index (DJIA). Recovery takes about eight months when this index falls more significantly (10% – 20%).
While it’s understandable to feel stressed if you’re exposed to these swings, it’s even more important to stick to your investment strategy and remember that stocks have historically gone up over time.
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This article originally appeared on Moneywise.com under the title: Elon Musk reacts to Democrat call for AI pause — while $2T vanishes from tech stocks. Are you exposed?
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