Is the artificial intelligence (AI) gold rush coming to an end, or is this simply a reality check?

That’s the question which is hanging over investors, and which has prompted steep falls on the world’s stock markets.

The sell-off in the US on Thursday was most dramatic on the Nasdaq, home to tech industry titans such as Alphabet, Nvidia, Meta and Apple.

It followed sweeping gains by the Democrats in this week’s midterm elections in the US, which have given the party full control of Congress.

A number of leading Democrats campaigned against the unhindered expansion of data centres, which have underpinned the growth of artificial intelligence.

Fears this will lead to more regulation of AI appear to have concerned investors. But worries about the industry’s prospects have been growing for some time.

The release of Chat GPT by Open AI in late 2022 is widely seen as having generated massive public and corporate interest in the practical uses of AI. It also sparked a modern-day gold rush.

Investors flocked to put their money into companies producing computer chips and networking infrastructure, building data centres and providing the energy to power them, as well as developing the AI itself. The value of tech companies soared.

The boom continued into this year. Investments in AI are expected to reach $1trillion in 2026 alone according to research by Goldman Sachs. The sector has scooped up so much available cash that other industries have seen their own borrowing costs increase as a result.

But investors want returns, and in recent months concerns have been growing about whether the AI boom can produce the expected riches.

Those worries have emerged at a time when public comments from AI researchers casting doubt over the safety of artificial intelligence – even suggesting it could represent an existential threat to humanity – have been grabbing headlines and fuelling speculation that a clampdown could lie ahead.

While the Trump administration has been all-in on AI, or “super intelligence” as the president likes to call it, many leading Democrats tapped into grassroots concerns about the expansion of data centres and their impact on local communities.

These were largely focused on the facilities’ high consumption of water and electricity, which many feared would push up their household bills – as well as the noise, use of land, and general disruption associated with them.

A Gallup poll published in May showed 71% of Americans would oppose the building of a data centre in their community. The figure for a nuclear power station was 53%.

James Talarico, who won the Senate race in once staunchly Republican Texas, was one of those to respond to this scepticism.

“While we want to protect America’s leadership in artificial intelligence, we are still grappling with how it will affect everything from how we work to how our children learn,” he said.

“We must protect Americans and establish clear, consistent laws for businesses.”

With control of both houses of Congress, Democrats are now expected to challenge the president’s technology agenda more vigorously, while introducing legislation which could curb the expansion of the industry.

Texas’ Democratic governor-elect Gina Hinojosa campaigned against data centres, pledging a moratorium on the construction of new facilities.

Hinojosa’s win could present opposition to tech multi-billionaire Elon Musk, who has moved large parts of SpaceX and Tesla’s operations to the state, for years a Republican stronghold.

The Tesla boss had spent nearly $450m to back Republican campaigns in the midterms.

As the co-founder of the British-based technology firm Arm Holdings, Tudor Brown, points out, “stock values are based on future earnings not present earnings”. If the rewards are not likely to be as great as expected, some investors will choose to sell up.

The falls seen on stock markets over the past 24 hours would appear to have been triggered by the midterm results. But concerns that tech firms have become overvalued were being expressed long before the elections.

The question now is whether this is simply the removal of froth from an over-exuberant market, or a sign that the AI rush is a bubble about to burst, with much wider consequences.

Nandini Roy Choudhury of Future Market Insights thinks investors will assess whether the political shift could result in restrictions on data centre construction, energy consumption and the deployment of AI technology.

She adds there is unlikely to be an immediate widespread recovery in tech stocks as traders are likely to be more selective, favouring firms with stronger balance sheets.

Brown thinks the impact will be limited. Share valuations, he thinks, were inflated by expectations of “almost infinite AI growth”, which have been followed by “a bit of a panic”.

“There is a natural floor to this”, he says. “After that it will reflect I think that actually there’s still a lot of money being made in these companies”.