The sell-off shows US political risk being priced directly into the AI supply chain, with Japan’s chip equipment, memory and cable makers treated as proxies for US data centre spending. The narrow breadth suggests a targeted rotation out of AI exposure rather than a broad flight from Japanese equities, which may limit wider damage if the US cash session stabilises. Other AI-heavy Asian markets, notably South Korea and Taiwan, are exposed to the same theme. A softer Nikkei could also weigh on sentiment in the yen and Japanese government bonds if risk aversion broadens. Confirmation of the final balance of power in Congress is the key catalyst for whether the move extends. --- Sell tech, sell USD and other signals from the massive blue wave that's unfolding It's no longer early, this election is looking like a disaster for Republicans Tokyo’s AI darlings took the hit for Washington’s shifting balance of power, as investors bet a Democratic Congress means a tougher road for data centre spending. Summary: The Nikkei fell 3.1% to around 61,130 and the Topix about 1.9% to around 3,860 by 0150 GMT AI-linked stocks led losses on fears of stricter US rules for data centre projects SoftBank fell about 7%, Advantest 6.4%, Tokyo Electron 5% and Kioxia 10% Fibre-optic cable makers Fujikura and Furukawa Electric fell 8.2% and 9% Breadth was mixed, with 130 Nikkei stocks falling and 95 rising Prediction markets pointed to a possible Democratic sweep of Congress, though no chamber has been called Japan’s Nikkei share average fell more than 3% on Wednesday as AI-related stocks slumped, Reuters reported. Investors were concerned that Democratic gains in the US midterm elections could bring tighter rules for data centre projects and slow spending on AI infrastructure. The Nikkei was down 3.1% at around 61,130 by 0150 GMT, while the broader Topix index fell about 1.9% to around 3,860. The bigger drop in the Nikkei reflects its heavier weighting toward the large technology and chip stocks that led the decline. Chip-related shares took the brunt of the selling. Chip-testing equipment maker Advantest fell 6.4% and Tokyo Electron dropped 5%, while technology investor SoftBank Group lost about 7%. Memory chip maker Kioxia slumped 10%. The selling also spread to suppliers of the physical infrastructure behind data centres, with fibre-optic cable makers Fujikura and Furukawa Electric down 8.2% and 9% respectively. A portfolio manager at a Tokyo-based asset manager told Reuters that Democratic wins in some key states had fuelled caution about stricter regulation of AI infrastructure investment. The losses were concentrated rather than broad. Of the 225 stocks in the Nikkei, 130 fell and 95 rose, suggesting investors were targeting AI-exposed names rather than selling Japanese equities across the board. Prediction markets have signalled growing expectations of a Democratic sweep of both chambers of Congress, with nearly $1.5bn wagered on the elections, Reuters reported. No chamber has yet been formally called. Beyond AI, the result could affect the US fiscal outlook, defence spending and regulation of healthcare, banking and cryptocurrencies. The sell-off highlights how closely Japan’s market has become tied to the global AI trade, which has driven much of the Nikkei’s rise. It also follows strong results from US chip and server makers overnight, a reminder that political risk is now competing with earnings as a driver of AI stocks. Investors will be watching the final US results and the reaction in US cash markets for signs of whether the selling in AI-linked shares deepens or eases. This article was written by Eamonn Sheridan at investinglive.com.