$3 Trillion Wiped Out, But This Strategist Says AI's Biggest Problem Isn't Demand: 'Compute Will Become More Scarce'

Market strategist James Thorne said Thursday that the artificial intelligence selloff, which erased about $3 trillion from U.S. stocks, reflects heavy leverage and weak sentiment, not a demand collapse.

A Rout Driven by Sentiment

The Chief Market Strategist at Wellington Altus compared the current anxiety to last year’s "software is dead" narrative, arguing that investors are once again mistaking a potential adjustment in the technology cycle for the collapse of an industry.

“Today’s selloff looks more like a collision between deteriorating sentiment and excessive leverage than proof of collapsing fundamentals,” he said, adding that falling prices alone don’t show that demand has disappeared.

AI’s Reckoning Is About Discipline, Not Decline

Late last year, investors embraced the argument that artificial intelligence would destroy software. Microsoft and other software stocks suffered. That sweeping thesis failed.

Now comes the next obituary: the AI data-centre boom…

— James E. Thorne (@DrJStrategy) November 5, 2026

Two days after Democrats secured control of Congress in the midterm elections, the S&P 500 lost about $3 trillion on Thursday amid fears that the AI buildout could slow, and the Nasdaq 100 had its largest daily drop since the 2020 pandemic.

Nvidia Corp. (NASDAQ:NVDA) lost nearly $450 billion in market value in a single day, taking its losses since its October high to $1.39 trillion.

Why Slower Spending Could Help

“Even slower capital spending would not invalidate the investment case. It could improve it,” Thorne said, adding that “compute will become more scarce.”

A more measured buildout could ease pressure on credit markets, electricity prices and inflation while improving hyperscalers’ cash flow, he said.

An arms race among rivals could give way to capital discipline that punishes weak projects and inflated valuations, Thorne said, but it “need not destroy the industry.”

Data Center Backlash Tests the AI Buildout

Democratic calls to ban superintelligence deserve scrutiny, he said, but an outright ban “would effectively surrender American technological leadership to China.”

Texas Gov.-elect Gina Hinojosa, a Democrat, told CNN on Thursday that data centers had moved into mostly rural communities without adequate protections for residents.

"We will have laws to protect Texans, and we need to stop what we are doing with data centers until we have those protections," she said.

She indicated that projects already permitted can finish, while new ones could face added requirements such as taxes, union labor, and consumer safeguards.

Price Action: The iShares PHLX SOX Semiconductor Sector Index Fund (NASDAQ:SOXX) fell 12.15% on Thursday to close at $131.90, then rose 3.17% to $136.08 in overnight trading.

Benzinga Edge rankings indicate the semiconductor ETF has a Momentum score in the 37th percentile, with positive price trends across the short, medium, and long term.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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