Stocks soared on the Democratic sweep. Less than 24 hours later, the AI trade cracked.

Wall Street's tumultuous midterm election week kicked off with a celebration among investors.

On Wednesday, stocks soared after Democrats swept both chambers of Congress. The Dow (^DJI) surged more than 1,500 points. The S&P 500 (^GSPC) rallied nearly 2%.

And in less than 24 hours, stocks reversed course, plunging Thursday as Wall Street and Main Street investors alike ditched artificial intelligence winners and chip stocks, sending the tech-heavy Nasdaq Composite (^IXIC) into correction territory.

The extraordinary reversal marked just the latest whipsaw in a year of wild swings, with the market's best expectation of future volatility, the VIX (^VIX), spiking to its highest level since President Trump extended the deadline for the Iran war in late March.

As the election results rolled in, Steve Sosnick, chief strategist at Interactive Brokers, was glued to his television, flipping between CNN, Fox, MSNBC, and Bloomberg while watching stock futures slip. When Sosnick went to bed, futures were still down roughly 1%.

Democrats had won control of both the House and Senate, resolving one major source of uncertainty for markets, while introducing a specific complication to the country's artificial intelligence investment boom.

States where newly elected governors have promised to stop or pause data center construction account for an estimated 45% of planned US data center capacity, according to Goldman Sachs.

In Texas, where more than half of the country's data center capacity is planned for construction, stakes were especially high. Democrat Gina Hinojosa had just won the race to become governor after promising a moratorium on new data center approvals.

The shift caught the attention of one of the world's most prominent business titans.

"Data centers in space look pretty appealing right now," Elon Musk posted on X early Wednesday.

By Wednesday morning, Wall Street was seeing silver linings in the blue wave.

Stocks took off. The Dow jumped 3%, its best day in months. The S&P 500 rose 1.6%, and the Nasdaq gained 1.4%.

Investors appeared to welcome the prospect of a divided government, potentially limiting some of President Trump's agenda. Oil prices (CL=F, BZ=F) also plunged, helping ease inflation concerns.

And the removal of election uncertainty ushered in a sharp drop in the VIX. That drop may have encouraged volatility-sensitive trading strategies to buy stocks, adding more upward pressure to the rally, according to Sosnick. As prices climbed, more investors piled in.

But beneath the rally, trouble was brewing.

For more than a month, hedge funds had been selling stocks tied to the artificial intelligence boom in a dash to lock in year-end profits. Shares of chipmaking equipment companies Lam Research (LRCX) and Applied Materials (AMAT) had already lost roughly a third of their value over the preceding month.

The prospect of a blue sweep bringing new data center restrictions was just one more reason to retreat from the AI trade.

By Thursday, those strains became impossible to ignore. The Dow plunged more than 1,800 points, wiping out Wednesday's gains. The S&P 500 sank 4.4%. The Nasdaq collapsed 5.5%.

Truist chief markets strategist Keith Lerner described the moves to clients as "something of a buyers' strike" in tech stocks.

The VIX volatility index (^VIX) spiked as much as 70%, a move that has only happened eight times since 1991, according to data from CBOE.

"They're shooting the generals," Nomura strategist Charlie McElligott wrote Thursday, describing the unraveling of the year's most popular stock market bets.

For Sosnick, stocks' reversal illustrated how quickly investor confidence can evaporate.

The election results hadn't changed. What had changed was investors' willingness to take risks. And in a market already questioning the AI boom, that was enough to turn Wednesday's celebration into Thursday's rout. At Friday's close, the S&P posted its worst weekly performance since June.

Follow David Hollerith on X @DsHollers.