The American and global investors can’t seem to make up their minds on the massive losses suffered by the Grand Old Party – better known as the Republican Party – in the midterm elections in the United States.

The elections were held on November 3, 2026.

On November 4, the tech- and artificial-intelligence-heavy Nasdaq Composite Index rallied 1.4%. The logic being, now that the Democrats will control both the Senate and the House, Donald Trump and friends will finally have to call off their military adventures in West Asia.

Oil prices will fall. Inflation will come down. Bond yields and interest rates will fall too. And we will all live happily ever after.

On November 5, the realisation dawned that one of the issues the Democrats had campaigned on was the proliferation of data centres and their wider impact on society.

The Nasdaq Composite fell 5.5%.

On November 6, the Nasdaq Composite went up 1.1%. We were now told that the building of new data centres could move to friendlier states in the US. But that will take time.

So, that leaves us with a few questions. Has the AI bubble popped? What’s the impact of this going to be on financial markets?

First, the opposition to data centres isn’t really going to go away soon. Other than having a negative environmental impact, given the enormous amounts of water they consume, data centres have also contributed to rising electricity costs for households.

Nonetheless, data centres provide computing power to AI. And without constant increases in computing power, the AI lords cannot keep selling the AI productivity story to Wall Street over and over again.

And without that story, the stock prices of AI companies, which have seen massive increases in a short period of time, cannot keep moving up at a fast pace. This has consequences.

As Cory Doctorow writes in The Reverse Centaur’s Guide to Life After AI – How To Think About Artificial Intelligence Before It’s Too Late: “When a company has a solid growth stock, other people want that stock. The company can use that stock to buy stuff, like other companies.”

Indeed, as long as a company’s share price keeps rising, it can keep issuing more stock to buy other companies or hire key people by offering them generous stock based compensation. That is why rising stock prices are such an important part of the AI story.

Second, has the AI bubble popped?

Whether a bubble has popped or not remains a very difficult question to definitively answer. But some educated guesses can be made.

The Nasdaq Composite reached its all-time high on October 6, 2026, and is down 11% since. Nonetheless, it’s up close to 14% from the start of April 2026.

In that sense, the bubble has clearly let off some steam, but it hasn’t popped, at least not in the United States. But the same cannot be said about Kospi – the stock market index of South Korea, where the bubble has clearly popped. It has dropped more than 44% after reaching an all-time high on June 22, 2026. This is because Samsung Electronics and SK Hynix, companies which benefited massively from the AI bubble, ended up having a huge weight in the index. A similar story has played out in Taiwan.

Third, the AI lords didn’t do their future much good by siding totally with the Grand Old Party. They forgot the most basic rule of investing (and politics, if you are big business): Don’t put all your eggs in one basket.

But given that US politics and business have always been very close, the damage will be repaired to some extent, though it will take some time.

Also, even the Democrats realise that AI investments have been powering much of the American economic growth, and they can’t really dump them lock, stock and barrel. So, compromises will slowly be worked out.

Further, the much-talked-about IPO of Anthropic is due, and it’s too big to fail, so it will have to be pushed through. The system, or the deep state, whatever you want to call it, will take care of it. Of course, Anthropic isn’t going to get the valuation of more than $2 trillion, as was being expected up until a few weeks back.

Having said that, the negative economic and environmental impacts of AI are extremely juicy issues for politicians looking to win elections. The Republicans, for the most part, have chosen to ignore them.

Fourth, history tells us that whenever humans get excited about a new technology, they tend to overbuild it. This leads to overcapacity, as was seen during the railway bubble of the 1840s, when six railway lines were planned between the English cities of Manchester and Leeds, and again during the telecom bubble of the 1990s and early 2000s, when enormous amounts of internet bandwidth were created to meet a demand that simply did not exist. The railways and the internet both survived, but a lot of capital was destroyed.

The AI boom could follow a similar trajectory. The race to dominate the market is prompting companies to invest enormous sums, but when the dust settles, only a few may emerge as winners in what is in any way a winner-take-all market.

Fifth, the AI lords are in a hurry to prove that their technology is going to change the world as we know it. As Doctorow writes: “The current AI bubble is being driven by large tech firms’ need to tell a growth story to investors, which means that this AI has to be deployed in a way that reduces wages, because that’s the only thing that customers will pay enough for to make all those investors’ money back and more besides.”

Nonetheless, Richard Susskind writes in How to Think About AI – A Guide for the Perplexed, technological progress and its adoption are two different things. Just because AI can be built and made to work does not mean people and businesses will embrace it at the same pace. Commercial, cultural, regulatory and ethical hurdles can slow its adoption considerably.

Of course, the AI lords understand this, but what they also understand is that as long as they keep selling the AI productivity-cost-cutting story, its mere existence will lead to the wages of workers being suppressed.

Politicians wanting to stay relevant will catch on to this sooner rather than later and will keep making it an electoral issue like data centres. The point being that the AI story will keep losing some of its shine as it runs into the realities of politics, regulation and public resistance. And the more the technology is sold as a way of replacing workers and cutting wages, the greater this resistance is likely to become.

The AI lords may be in a hurry to change the world, but the rest of the world may not be in quite the same hurry to oblige. And when the promised returns fail to keep pace with the money being poured into AI, the bubble will continue to lose steam.

Which is why if your money manager is still betting big on AI, do keep this in mind.

Sixth, what does it mean for investing in India?

Foreign institutional investors have net invested close to ₹460 billion into Indian stocks in November (as of November 6, 2026). From the way the different indices have rallied, it’s safe to conclude that a lot of this investment is concentrated in the large-cap stocks. Not surprisingly, the thirty-share BSE Sensex has rallied close to 9% since the end of October.

Basically, these inflows and the jump in the Sensex should shut up everyone who has argued over the last two years that India does not need FIIs or that if they don’t come to India, where else will they go.

Those in and around the business of managing other people’s money, the OPM wallahs, have been arguing that India is the anti-AI market. But what they have forgotten to tell us is that the price of oil has fallen dramatically in November.

The price of the Indian basket of crude oil has fallen from an average of $119 per barrel in October 2026 to $94.5 per barrel as of November 5, 2026, a fall of more than 21%.

Given that India imports close to 80% of the oil and gas it consumes, the price of these commodities matters far more to the Indian stock market than whether India is seen as an anti-AI play.

So, the sooner the war in West Asia ends, the better it is for the Indian economy and the stock market. Even at $94.5 per barrel, oil prices still remain very high for India.

Further, the OPM wallahs have made a lot of song and dance around the valuations of the Indian large caps being attractive. They have definitely been more attractive than the midcaps and smallcaps, but they haven’t exactly been screaming buys.

The price-to-earnings ratio of the Sensex stocks was 19.3 as of the end of October 2026. This was slightly lower than the long-term median ratio, with data starting from January 1991 onwards.

As of November 6, 2026, the ratio was at 20.6, almost similar to the long-term median of 20.5. Clearly, valuations aren’t as attractive as they were made out to be by the OPM wallahs.

High valuations were a major reason why the FIIs sold out of Indian stocks in the first place. So, it remains to be seen how much they’ll buy from here on, given that valuations aren’t exactly low. Of course, the retail investors sitting on two years of stagnation might use this opportunity to sell their large-cap holdings.

Further, as and when the AI bubble in the US bursts, the safe-haven trade will be on, and money will flow into American Treasury bonds, deemed to be the safest financial asset in the world. And that will be the real anti-AI trade.

Some of this trade is already happening. The 10-year Treasury bond yield has fallen to 4.86% as of November 6, 2026, from 5.31% as of October 5, 2026, a fall of 45 basis points.

Anti-AI Gains?
For Indian investors, the lesson is not that an American AI bubble must burst for Indian stocks to do well. Nor is India automatically a safe haven because it has a smaller exposure to the AI trade. The market remains vulnerable to expensive crude, shifts in foreign investor flows and valuations that were never really cheap.

Indeed, a lot of the midcap and smallcap space remains in bubbly territory. The FIIs weren’t buying the entire Indian market to begin with. They were buying the large caps, where valuations had become slightly attractive. The midcap and smallcap segments, on the other hand, still have a fair bit of froth left in them.

Another factor that needs to be kept in mind is that a lame-duck Trump could hurt India’s economic interests in the months to come, given that he will have far more control over international policy than domestic policy.

To conclude, lower oil prices can support the rupee, ease inflationary pressure and improve corporate margins; a reversal can do the opposite. If the AI boom unwinds in the US, money may seek the safety of US Treasury bonds rather than Indian equities.

So, while the AI bubble may be losing steam, Indian investors shouldn't assume that Dalal Street will automatically benefit. Between expensive oil, foreign investor flows and bubbly midcap and smallcap valuations, there is enough to keep them on their toes.