How broad was the selloff?

  • QQQ fell 6.5% in a single day, its worst daily performance since the tariff scare in April 2025; the semiconductor sector fell 13%, its worst daily performance since March 2020, and closed near the session low.
  • The declines were not limited to chips: software fell 4.4%, and large cloud-service providers that had been relatively resilient the previous day were not spared. Meta fell 4%, Microsoft fell 3.6%, and Amazon and Alphabet each fell 2%.

Why is the selloff reinforcing itself?

  • TMT Breakout believes the AI trade's foundations were already fragile before this week began, and the election result became a catalyst for further selling; current flows and positioning changes are having more influence on near-term moves than theoretical debates over valuation.
  • The report says positions and leverage are still being unwound. QDS estimates that retail investors sold about 3 billion in U.S. equities during the first hour after the open; Nomura's McElligott estimates that leveraged ETF rebalancing involved 47 billion in sales that evening, including about 20.5 billion in semiconductors and 17.3 billion in technology.
  • Trading desks have differing observations about long-term investor activity: one said they were active, while Goldman Sachs' trading desk said they had largely stepped aside. TMT Breakout is therefore cautious about entering the market at this point.

What are the points of disagreement over data-center construction?

  • Texas politician Hinojosa said approvals for new data centers would be paused until the state legislature passes a new law; existing projects appear able to proceed, but she did not state a clear position.
  • The bullish counterargument is that a substantial number of data centers are already under construction and that other states and countries are willing to take on projects. Meanwhile, the report cites media accounts that OpenAI executives discussed whether next year's data-center capacity expectations needed to be reset; Microsoft exited three Nscale projects, and a site for IREN in Texas was also delayed by cable issues.

What else are investors worried about after semiconductor valuations fell?

  • The report cites Morgan Stanley data showing that the Philadelphia Semiconductor Index's two-year forward price-to-earnings ratio fell to 9.9, down from a peak of 30 two years ago; however, TMT Breakout is skeptical of the 2028 earnings forecast being used as the valuation basis.
  • Feedback from research in China cited by the report indicates that some investors are not only questioning 2028, but are also concerned about whether AI capital spending in 2027 can proceed as planned. They are asking what recurring revenue Anthropic and OpenAI can generate after AI coding; AI scientific research and chip design have been mentioned, but the timing and scale of commercialization remain points of disagreement.