The greatest loss of wealth in history raises doubts about the future of artificial intelligence

Artificial intelligence stocks fell in the US on Thursday and in Australia on Friday because the US Republican Party’s loss in mid-term elections makes it more likely restrictions will be placed on the construction of data centres in America, prompting copycat decisions elsewhere.

The 5.5 per cent fall on the Nasdaq stock market wiped out $3.6 trillion of investors’ wealth, which is 10 per cent more than the value of all stocks on the Australian Securities Exchange.

Led by a 9 per cent fall by Nvidia, the microchip maker and a 10 per cent drop in Tesla, it was history’s biggest loss of shareholder wealth on a single day measured in dollars. About $1.4 trillion was lost from what is know as the “Magnificent Seven” tech giants.

“The Stock Market suffered one of the Worst Days in History based on the results of the Election,” US President Donald Trump said on social media. “Such a sad thing to watch! It took so much work to get us to a level that no one has ever seen before, and then this.”

The share market in South Korea, home to many big tech companies, fell 9 per cent Friday morning, leading officials to impose a temporary trading halt. Taiwan Semiconductor Manufacturing Co, one of the world’s biggest semiconductor makers, fell 8 per cent.

Brothers down $430 million

The hardest-hit Australians are likely to be Sydney brothers Daniel and Will Roberts, who lost about $430 million on Wednesday and Thursday on their investment in IREN, a data centre business they listed on the Nasdaq in 2021.

Last November their individual holdings in IREN were worth $2.5 billion. Today they are worth $600m, a sign that this week’s share market rout is an acceleration of concerns about the AI revolution that have been building for a year.

The Republicans’ loss of both houses of Congress and five or more State governments this week has made investors concerned that regulators and politicians across the US will block data centres, which house the computers used to operate AI chat bots such as Claude, Grok, Gemini and ChatGPT.

Community activists in the US, Australia and elsewhere have seized upon the projects as the new urban blight. They complain they are noisy and use too much water and electricity.

In Texas, which has attracted plans for more data centres than any other US State, Republican Governor Greg Abbott recently said he would pause construction of the buildings.

Despite that concession to opponents, the Governor was voted out on Tuesday and will be replaced by Democrat Gina Hinojosa. She wants to ban new data centres until tougher laws can be passed over where they can be built.

In Australia, shares in NextDC fell 2 per cent. The Brisbane-based company operates 18 data centres and may have fallen further without a partial takeover bid that was launched earlier in the week. The S&P/ASX 200 index fell 0.75 per cent to 8996, reflecting Australia’s limited domestic technology industry.

‘Factory of the future’

It is unclear whether this week’s falls will come to be seen as a turning point for AI stocks or a temporary blip in a long upward trajectory.

Advocates promote AI as one of the most important advances this century. President Trump has said the US is in an AI race with China and he wants to stay ahead “because whoever wins AI wins”.

Labor politician and economist Andrew Charlton, who is responsible at the Federal level for AI regulation, has described data centres as the “factories of the new age” and a “sliding doors” opportunity for Australia’s economy.

Among potential uses could be AI-controlled cameras that detect bushfires well before they are seen by humans, scans that can detect skin cancer more accurately than doctors and underwater drones that search for crown-of-thorns starfish that destroy coral on the Great Barrier Reef.

Whether the benefits will be significant remains to be seen. The National Broadband Network, for example, was expected to allow medical operations to be conducted by surgeons remotely and trigger a boom in regional businesses by making it easier for them to sell products internationally.

While there have been some commercial benefits, the $5b NBN is mainly used for watching TV streaming services and surfing the internet.

The Reserve Bank of Australia says AI investment is adding to inflation, forcing it to drive up interest rates. So far, according to Reserve Bank governor Michele Bullock, there is no sign AI has made Australian businesses or workers more efficient.