Japan’s Nikkei drops 3% as Democratic gains in U.S. midterms hit AI stocks

Japan’s Nikkei ​average slumped on Wednesday as ‌AI-related stocks slid on concerns that Democratic gains in the US midterm elections could ⁠lead ​to stricter rules for dead-centre projects and slower AI infrastructure spending.

The Nikkei was down 3.1% at 61,127.9, as of ​0150 GMT, while the broader ‌Topix fell 1.85% to 3.857.97.

The outcome of the US elections could have broad implications for market-sensitive areas, including the AI dead-centre buildout, ‌the ​US fiscal outlook, ‌defence spending and regulation in areas ​such as healthcare, banking and cryptocurrencies.

“Democrats ⁠are winning seats in some ⁠key states. That fuelled caution for stricter ​regulations on AI infrastructure investment,” said Takamasa Ikeda, senior portfolio manager at GCI Asset Management.

In Japan, shares of chip-testing equipment maker Advantest and Tokyo Electron fell ⁠6.4% and 5%, respectively, while technology investor SoftBank Group slipped roughly 7%, as investors sold AI-linked stocks.

Memory chip maker Kioxia was down 10%.

Makers of fibre-optic ⁠cables, key materials for ​data centres, also fell, with Fujikura and ⁠Furukawa Electric down 8.2% and 9%, respectively.

Prediction markets signalled ‌growing expectations of a Democratic sweep of the US ​Congress, with more than $1.48 billion wagered on the midterm elections.

Of the 225 components in the Nikkei, 130 ​fell while 95 rose.