AI & Law
Global technology and artificial intelligence stocks suffered one of their sharpest single-week declines on record following the US midterm elections, in which Democrats swept to victory including in key data centre states such as Texas. The Nasdaq Composite fell more than 5% on Thursday. SpaceX shares dropped more than 7% in early trading on Friday, while Tesla fell more than 9%. Chipmakers bore some of the heaviest losses: AMD was down nearly 17% over five days, Micron plunged more than 20%, Intel fell more than 18%, Nvidia dropped more than 10%, and the Philadelphia Semiconductor Index fell by more than 13%. In Asia, South Korea's Kospi index fell more than 5% and saw trading halted, while Taiwan's Taiex posted a record single-session decline. The catalyst was investor concern that Democrat-controlled state governments would impose stricter regulatory and planning scrutiny on data centre construction: Texas governor-elect Gina Hinojosa campaigned on a moratorium on new data centre construction in the state. Technology leaders acknowledged being caught off guard by the community backlash. OpenAI president Greg Brockman and Meta president Dina Powell McCormick both told the WSJ Tech conference in Napa, California that the industry needed to do more to build community support and communicate the benefits of AI infrastructure. Some investors also cited concerns that AI stocks may have been in a valuation bubble due a correction.
Why this matters
The scale of the selloff reflects how much of the equity value in AI-exposed stocks had been priced on assumptions of unimpeded data centre expansion, particularly in US Sun Belt states. A single election outcome has introduced a new category of regulatory and planning risk that markets had not previously priced at this magnitude. For UK and European law firms, the implications are twofold: first, clients with AI infrastructure ambitions in the US face a materially more uncertain permitting and regulatory environment; second, the collapse in chipmaker and AI platform valuations may delay or reprice technology transactions, venture financings, and infrastructure deals globally. The episode also crystallises a broader governance challenge for the AI industry: community consent and social licence are now live commercial risks.
On the Ground
The selloff generates advisory work across technology transactions, regulatory risk, and investment funds practices. Firms advising on AI infrastructure investments need to revisit planning risk assessments and regulatory risk disclosures in transaction documents. Firms with US desks need to advise clients on how state-level data centre moratoriums would interact with existing development agreements, power purchase agreements, and construction contracts. Technology licence and AI governance work is also activated, as clients reassess their vendor relationships and infrastructure dependency. A trainee on an AI-related transaction would review technology licence agreements for change-of-control and regulatory risk provisions, draft AI governance policy summaries reflecting the new state-level regulatory risk landscape, and prepare vendor due diligence questionnaires addressing data centre location risk.
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“How does the risk of state-level data centre regulation affect the legal due diligence process for a client considering a major investment in US AI infrastructure, and what contractual protections would you look to include?”
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