Artificial intelligence (AI) stocks have been big winners in recent years, but regulations have struggled to keep up with the rapidly emerging technology.
However, a new batch of AI legislation went into effect on Jan. 1. And that means that AI stocks as well as nonpublic AI companies like OpenAI can no longer ignore these regulations in 2026. Here's what investors need to know.
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California leads the pack
While Texas has enacted the Texas Responsible Artificial Intelligence Governance Act (TRAIGA), which prohibits certain intentionally harmful AI-based practices, the biggest regulatory changes in 2026 have come from California, where a host of new AI rules are now in force.
Not only is California home to about 12% of the U.S. population, making it an important source of potential customers for any AI business, but the state is also home to 32 of the 50 top global AI companies, including OpenAI, Anthropic, and Midjourney, as well as AI-focused tech giants like Alphabet's (GOOGL 1.66%) (GOOG 1.68%) Google and Nvidia (NVDA 1.53%).
Now that California is enforcing these rules, AI companies will need to pay attention.
Transparency and safety
California's Transparency in Frontier AI Act requires "frontier" AI developers to maintain a continuous process for identifying and mitigating catastrophic risks, and to provide detailed information to the public regarding their systems' capabilities, purposes, and safety. It also creates penalties for noncompliance. While some AI companies have been providing this information voluntarily, it's now a requirement.
Separately, California Assembly Bill 316 prohibits any civil defendant who "developed, modified, or used" an AI system alleged to have caused harm from asserting that "the artificial intelligence autonomously caused the harm" as a defense.
Several AI companies, including Anthropic, have endorsed the California laws as codifying best practices for risk management that they have already been voluntarily following. However, for companies that have not been providing this transparency, the new laws will provide investors with valuable insights into the potential risks of investing in AI.
