Nasdaq futures fall as chip stocks come under pressure amid U.S. midterms fallout

 Nasdaq futures retreated on Thursday, weighed down by chipmaking stocks, as investors gauged the impact of a sweeping Democratic victory in the U.S. midterm elections on artificial intelligence regulation. 

By 05:17 ET (10:17 GMT), the Nasdaq futures contract had fallen by 157 points, or 0.6%. S&P 500 futures were mostly unchanged, while Dow futures climbed by 236 points, or 0.4%.

The main U.S. stock indices rallied in the prior session, with analysts at Deutsche Bank pointing to "relief" that some uncertainty surrounding the outcome of the midterms had been cleared. The tech-heavy Nasdaq Composite gained 1.44%, the benchmark S&P 500 rose by 1.58^, and blue-chip Dow Jones Industrial Average jumped by 3.03%.

However, weakness has persisted in U.S. chipmaking stocks and has bled into Asian semiconductor names.

"[S]ome parts of the tech space traded poorly yesterday amid uncertainty as to what the election result will mean for regulation of things such as data centers. This uncertainty has accelerated overnight," the Deutsche Bank analysts said in a note.

AI chip giant Nvidia was slightly lower in premarket U.S. trading, as were peers Advanced Micro Devices and Intel. Meanwhile, shares of memory-chip titans SK Hynix and Samsung Electronics in South Korea slipped sharply. In Taiwan, Foxconn Technology Group, the world’s biggest contract electronics maker, slumped by more than 3%, while top contract chipmaker Taiwan Semiconductor Manufacturing Co. fell by 0.88%.

Analysts have fretted that Democrats, who will control of both chambers of Congress starting in January, could pursue greater regulation of the AI system and attempt to slow down the proliferation of massive data centers. Democrat Gina Hinojosa’s election as governor of Texas, where a number of large-scale data center projects are planned, may be a precursor for more stringent AI infrastructure rules in the state, analysts at Macquarie Group said in a note.

Still, the Deutsche Bank analysts highlighted that a divided government -- with Republican President Donald Trump retaining the power to veto legislation backed by Congressional Democrats -- may ease concerns about the U.S. fiscal trajectory, "given it’ll now be more difficult to pass tax cuts or spending packages."

Elsewhere, the prospect that the election could hasten a diplomatic resolution to the Iran war triggered a sharp drop in oil prices on Wednesday, dragging benchmark Brent crude futures below $100 a barrel. On Thursday, Brent oil had edged up, hovering around $96 a barrel. Lower oil prices could lessen fears of energy-induced inflation, potentially cooling some worries that the Federal Reserve will be aggressively raise interest rates.

Arm, Qualcomm dip

British chip designer Arm Holdings fell over 4% in premarket trading after its current-quarter revenue and profit guidance failed to beat expectations. The guidance miss largely overshadowed top and bottom-line beats by the company in the September quarter.

Chipmaker Qualcomm also tumbled by more than 10% before the opening bell on disappointing smartphone chip revenue. Investors were also spooked by Qualcomm’s warning of rising costs across the chipmaking supply chain, which offset a strong sales forecast at its data-center chips unit. 

The quarterly earnings season is set to continue on Thursday, with precision engineering firm Parker-Hannifin (NYSE:PH), energy producers Southern Company (NYSE:SO) and Duke Energy Corporation (NYSE:DUK), and homestay platform Airbnb Inc (NASDAQ:ABNB) set to report on Thursday.

Key labor market prints are also due this week. Weekly jobless claims data and Challenger job cuts readings are due on Thursday, followed by the all-important nonfarm payrolls data for October on Friday.

The nonfarm reading is expected to provide more cues on the labor market and will likely factor into the Fed’s plans for interest rates. The central bank is expected to hike rates in December to help quell inflationary pressures, and signs of labor market resilience could give the central bank more headroom to lift borrowing costs.

(Ambar Warrick contributed reporting)