'AI bloodbath': Nasdaq 100 sinks 6%, VIX 'fear gauge' posts biggest jump in 8 years

All three major U.S. stock indexes suffered their worst day since April 2025 on Thursday. The Nasdaq Composite plunged 5.5%, entering correction territory after falling more than 10% from its latest high. The Nasdaq 100 tumbled 6.4%. The broad S&P 500 slid 4.4%, while the blue-chip Dow Jones Industrial Average dropped 3.4%. The Nasdaq Composite alone shed around $2.5 trillion in market value on Thursday, its largest such one-day loss on record, MarketWatch reported.

An “AI bloodbath” is how Barron’s describes the market turmoil. The Cboe Volatility Index, or VIX, known as Wall Street’s fear gauge, surged almost 71% to an intraday high of 28.36 points. It thus reached its highest level in seven months, with its largest one-day percentage gain since February 2018, as Seeking Alpha reported.

Information technology was the hardest hit of the S&P 500’s 11 sectors, falling 7.3%, but the selloff was broad, with all 11 finishing in the red, MarketWatch noted. Tech stocks suffered their biggest drop since 2020. Investors appear concerned that the congressional majorities Democrats won in the midterm elections could slow the massive AI investment that has fueled stock market gains this year, MarketWatch wrote.

Chip stocks plunged on Thursday. The Philadelphia Semiconductor Index tumbled 12.25%, its worst performance since March 2020, Bloomberg reports. Micron fell 17.5%, while Sandisk lost 22.3%. Barron’s points to several signs of profit-taking: many stocks suffered their worst day of 2026, yet many of those names remained up year to date, including Sandisk, Micron, Seagate, and Western Digital.

Nvidia sank 9.3%, meaning it is now down 2.6% year to date. The other Magnificent Seven companies had little to celebrate either: Apple fell 1.5%, Microsoft lost 3.6%, and Alphabet declined 2.2%. Tesla plunged 10.8%, while SpaceX dropped 9%. Together, the two Elon Musk-led companies have lost $450 billion in market capitalization over two days, MarketWatch reported, citing Dow Jones Market Data. “Call it the ‘Musk selloff,’” the outlet quipped.

Many on Wall Street believe hedge fund liquidations, rather than fundamentals, were behind the market rout, Barron’s wrote. “It's extremely rare to have this kind of a move without any big market-moving news,” Noel Smith, cochief investment officer at Kai Asset Management was quoted as saying. “It does smack of liquidation.” He points to fire sales in which positions are sold at any price: “All they want to do is remove that risk from their books.” “There are going to be bodies floating up to the surface soon after today. Real liquidation vibe,” trader Mark Dow warned on X.

Systematic funds may have been one of the driving forces behind the selloff, Bloomberg wrote. Recall that these funds apply a set of rules to select investments. So-called volatility control funds, which take long and short positions based on volatility levels, were expected to rebalance on Thursday and sell around $135 billion in U.S. equity futures over the following 24-48 hours, Bloomberg reported, citing Barclays estimates. That, Bloomberg writes, would be the largest adjustment since December 2018.

Selling pushes prices lower, triggering further liquidations that drive prices down again. That cycle is compounded by the fact that many funds owned the same small group of winning stocks, Barron’s noted. “My gut tells me that as soon as the liquidation is done, we bounce,” Smith of Kai Asset Management added. “But my data says to derisk today, so that's what I'm doing.”

“This is not a tipping point for the end of the AI trade,” Stephen Dover, chief market strategist at Franklin Templeton Institute, told MarketWatch, which quoted him as saying that “the AI trade is not over,” even if it has likely peaked. A slowdown in the race to build AI infrastructure would be “healthy” for the market, Dover adds.