Investing.com -- Potential regulatory guardrails around AI may weigh on Big Tech but "could prove bullish for the broader market," Jefferies analysts said in a new report. The recent sell-off in software and financials "largely assumes there will be no guardrails around AI," but growing public concern may push policymakers toward tighter oversight, the analysts said.

The move could ultimately support the wider market, even as it creates a more negative backdrop for large technology companies. In the report, Jefferies noted that Americans show higher levels of concern about AI than peers in other major economies. A majority also favors safeguards over rapid innovation, a dynamic the analysts said increases the likelihood of stricter rules, disclosure requirements and enforcement actions, particularly ahead of U.S. midterm elections.

State-level momentum is already building. According to the report, more than 1,200 AI-related bills were introduced across U.S. states in 2025, with 874 still active or under consideration. Roughly 40% of these focus on private-sector use, signaling "broad and sustained state activism," the analysts said. Jefferies pointed out that the five states with the largest data-center footprints have all introduced or enacted some form of restrictions on new builds. "Taken together, these trends suggest that state-level constraints are likely to play a material role in shaping AI deployment and infrastructure buildout in the near term," the analysts wrote.