Stocks Plunged Despite Lower Rates as Wall Street's Doubts About AI Spending Grow
The S&P 500 fell 4.36% and the Nasdaq 5.52% on Nov. 5. The selloff looks more like a repricing of lofty expectations than proof that AI earnings have turned.
The 20-second read
On Nov. 5, the S&P 500 fell 4.36% and the Nasdaq dropped 5.52%. SOXX, the semiconductor ETF, lost 12.15% in a single day.
The Nov. 5 shock in numbers
| Index | Change | Close |
|---|---|---|
| S&P 500 | -4.36% | 7,353.73 |
| Nasdaq | -5.52% | 24,315.00 |
| SOXX | -12.15% | $131.90 |
| VIX | +69.66% | 28.18 |
Closing levels on Nov. 5.
What happened to AI?
The first shock came from data centers.
After the midterm elections, regulation of new data center construction and power use could tighten in some parts of the US. If data centers are built later, GPU and server deployments could slip too. That could push back the timing of revenue chipmakers had expected.
There is an important difference, though. A higher chance of regulation is not the same as chip orders actually being canceled. The selloff can be read as stocks carrying the highest growth expectations being sold first, once confidence in future earnings weakened.
The second problem is cost. In its Nov. 4 earnings report, Qualcomm formally acknowledged broad increases in input costs, including chip manufacturing, packaging and memory. It added that price increases need time to flow through fully.
High selling prices can help memory makers. For the smartphone and server makers that buy that memory, they are a cost. The episode showed that the whole AI supply chain cannot expand profits in the same direction at once.
Why did other chip stocks fall more than Nvidia?
| Stock | Nov. 5 return |
|---|---|
| Sandisk | -22.26% |
| Micron | -17.46% |
| AMD | -17.26% |
| Tesla | -10.77% |
| Nvidia | -9.26% |
| Apple | -1.53% |
Daily returns of major AI-related stocks, based on regular-session closes on Nov. 5, 2026.
Nvidia fell sharply, but memory and chip equipment names saw even more extreme selling.
That is hard to read as direct evidence of worse earnings. It does show the market's concern that even a slight slowdown in AI capital spending could change company earnings expectations and valuations a great deal.
Large platform companies such as Apple and Alphabet fell less. Companies that generate cash flow from many businesses were sold less than those concentrated in AI capex. Still, it is hard to say that money actively flowed into platform stocks.
Tesla's 10.77% drop: what does it mean?
Tesla closed at $343.69, a far bigger fall than the Nasdaq's.
Tesla's valuation is hard to explain by auto sales alone. It also reflects the potential of autonomous driving, robotaxis and robots.
When risk aversion rises, expectations for businesses that have not yet materialized can be discounted more heavily. But a one-day decline alone does not show that Tesla's self-driving technology or commercialization prospects have actually worsened.
Long-term investors should watch less the size of the drop than the expansion of real autonomous service, the ability to generate profit, and cash flow from the auto business.
Bottom line
What matters now is less how cheap stocks have become than how much companies can earn ahead, and how much that expectation has changed. The market's fear should not be ignored. There is also little reason to mistake the fear itself for a company's future.
- The effects of uncertainty over future earnings and a higher risk premium may have outweighed the positive effect of lower rates.
- Lower rates are not always a good signal for risk assets in themselves.
- The size of the drop alone makes it hard to judge whether a stock is undervalued.
- You need to check the earnings outlook, customer orders and current valuation together.
- One day of stock prices cannot tell you that the cycle is over.
- The test is whether actual capex cuts and order declines show up.
- First check whether you are using leverage or are overly concentrated in a particular industry.
- For companies whose investment thesis still holds, build positions in stages to fit your cash. Be wary of forcing purchases in an attempt to time the short-term bottom.
What to watch
Insight Times Editorial Desk
