After the election the Dow rose more than 3%, yet semiconductors fell 3%. Why did chips move on their own? AMD rose after hours on strong earnings. How should I think about this if I hold a semiconductor ETF?
2026-11-05
The index rally and the chip selloff came from different news
The Nov. 4 rally was a falling-yields-and-oil session driven by legislative gridlock and hopes for an end to the Iran war. Semiconductors (SMH -3.21%) fell for a different reason, the flip side of the same election result: data center regulation risk. One election result acted as a lower discount rate for some sectors and as a possible demand loss for others.
Regulatory risk had been building before the election
- New York put a one-year moratorium on large data centers in effect in July, and the Texas governor halted approval of new projects in August. At the federal level, Sanders and Ocasio-Cortez introduced a bill to halt construction (Sherwood News and others, 2026-10).
- Before the election, Reuters flagged a Democratic sweep of both chambers as the biggest threat scenario for AI (Reuters via Kitco, 2026-10-22). The market knew about this scenario, and it is natural to read the selling as profit-taking in SMH, which had risen the most, once the outcome actually arrived. Some also noted that SMH was up about 74% year to date.
Even within AI infrastructure, the impact diverges
| Group | Regulatory exposure | Reason |
|---|---|---|
| Hyperscalers that have already secured permitted capacity | Low | Financial strength, and 2026-2027 projects are judged relatively safe |
| Neoclouds (CoreWeave and others) | High | Depend on new sites and outside borrowing. CoreWeave's bond yield is about 15% |
| Memory and equipment | Medium | Construction delays mean order delays. But estimates of what share of planned additions is affected vary widely, from Goldman's 45% to Dan Ives's 10% |
| Servers and networking (AMD, SMCI, ANET) | Earnings confirmed | Demand already ordered is being booked as revenue |
Even if construction is blocked, demand does not vanish. Instead there is a lag as sites move to other states. The neoclouds, which must secure sites and financing at the same time, bear the brunt of that lag.
Will AMD's after-hours gain hold in the regular session?
The earnings release came after the regular session closed, so it was not reflected in SMH's Nov. 4 decline. If after-hours gains of AMD +7%, SMCI +9% and ANET +12% hold in the Nov. 5 regular session, that signals "earnings beat policy worries." If the gains fade early in the session, it means the market weighs the regulatory discount more heavily than earnings. One more thing to watch is SMCI's operating cash flow of -$434m. Receivables rose and tied up cash, so the after-hours surge is hard to take at face value.
What investors can do
- Do not treat a semiconductor ETF such as SMH as one block. Check the Nov. 5 regular-session reaction first. If the after-hours gains hold, additional selling pressure is weaker for now.
- CoreWeave and Nebius earnings on Nov. 11 and Nvidia earnings on Nov. 17-18 are the second test. Before those two dates, it is safer to build positions in stages than to add heavily.
- The KOSPI and Taiwan index ETFs, which are heavy in semiconductors, swing together on US policy news. Believing one index ETF diversifies you can leave you doubly exposed to the same risk.