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The Great AI Regulation Cleave

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The Great AI Regulation Cleave

The tech industry is fracturing into two distinct models of power consolidation. On one side, the federal government is aggressively centralizing AI authority while explicitly punishing state-level regulation. On the other, major content holders like Disney are discovering that licensing deals with AI companies are far more profitable than legal battles. The net effect: a dramatic reshuffling of who controls AI infrastructure, IP, and the regulatory rulebook itself.

Deep Dive

Federal Power Grab Meets Corporate Licensing Reality

Trump’s executive order represents something unusual in tech regulation: not just preemption, but active punishment of state governments that attempt their own AI guardrails. The order directs federal agencies to sue states over AI laws, potentially strip funding for broadband programs, and actively discourage states from regulating. This is hardball federalism in service of a specific industrial policy: American AI dominance through minimal friction.

What makes this moment significant is how it resolves a years-long stalemate. Congress has twice tried and failed to pass AI regulation moratoria. Rather than wait for legislative consensus, the Trump administration is using executive power to achieve the same outcome unilaterally. The message is clear: AI regulation happens in Washington, not in 50 different state capitols. Companies like OpenAI, Google, and Anthropic have lobbied hard for exactly this outcome.

But here’s the wrinkle: while the government is consolidating regulatory power, major media companies have found that negotiating directly with AI labs is far more lucrative than fighting them. Disney’s $1 billion investment in OpenAI paired with licensing 200 of its characters for use in Sora represents a complete strategic reversal. Rather than prevent AI companies from using Mickey Mouse and Darth Vader, Disney is monetizing it. The three-year deal essentially converts Disney’s IP into a revenue stream from generative AI.

This creates a perverse incentive structure. Large IP holders with negotiating power cut licensing deals and become vested in AI company success. Smaller creators, competitors, and public interest groups have no seat at the table. The regulatory environment that emerges will be shaped by deals between major corporations, not by democratic process. Disney’s simultaneous cease-and-desist to Google demanding Google block Disney content from Gemini while licensing the same content to OpenAI is the logical endpoint of this model. Disney gets to weaponize copyright against competitors while profiting from friendlier AI shops.

The Hardware Consolidation Accelerates

Anthropic’s $21 billion in TPU orders revealed by Broadcom CEO Hock Tan shows the scale of infrastructure investment required to compete in frontier AI. Ten billion in Q3, eleven billion in Q4. This isn’t a startup decision. This is an existential bet that Anthropic must match OpenAI’s computational scale or lose relevance entirely.

The implication is brutal for the broader ecosystem. Building a frontier AI lab now requires tens of billions in capex just for hardware. This creates a winner-take-most dynamic where only companies with access to massive capital can compete. It also concentrates power with semiconductor vendors. Broadcom, Nvidia, and Google (through its TPU business) now have extraordinary visibility into who’s building what and at what scale. They become gatekeepers not just of supply, but of strategic intent.

Oracle’s $15 billion increase in data center capex triggered an 11 percent stock slide, but the move was necessary. Oracle, like Amazon and Microsoft, needs to build AI infrastructure to remain relevant. The capital intensity of this arms race is now so high that public market investors are questioning whether returns can justify the investment. Yet companies have no choice but to spend or concede the market entirely.

The Model Moment: Google, Runway, and the Race Beyond Text

On the same day OpenAI dropped GPT-5.2, Google released Deep Research as an embeddable tool and Runway unveiled its first world model (GWM-1) with native audio capabilities. The parallel launches signal that the AI frontier has moved decisively beyond language models. The game now is agents, simulation, multimodal coherence, and physics-aware models.

GPT-5.2’s claim to match humans on 70 percent of work tasks sounds impressive until you realize the actual competition isn’t between models in a lab. It’s about who can deploy agents that interact with the real world, run experiments, and generate video and simulation at production quality. Google’s focus on embedding research capabilities into developer tools and Runway’s world models for robotics and avatar applications represent the next layer of competition.

The strategic implication: companies that own the foundational models are now racing to own the application layer and the agentic orchestration layer. This is where differentiation will actually happen. A language model is increasingly a commodity component in a larger system. The winner is whoever can build the system that matters.

Signal Shots

NY Governor Copies California’s AI Law Verbatim — Gov. Hochul is proposing to replace New York’s RAISE Act with text copied directly from California’s SB 53, sources tell Transformer. This is regulatory copy-paste at scale, suggesting states are abandoning the pretense of writing novel AI policy and simply adopting whatever framework the largest state passes. Watch for whether Trump’s executive order will pre-empt this California model before it spreads further.

Epic v. Apple Appeals Court Ruling Opens Door to Variable Fees — A US appeals court upheld Apple’s contempt ruling but allowed Apple to charge commissions on external links with rates set by lower court. This splits the difference: Apple lost on the contempt charge but gets another chance to argue for monetization. The real risk for Apple is that a court-set rate could be lower than the current 15-30 percent, effectively forcing price reductions.

DeepMind Opens Automated Research Lab in UK — Google’s DeepMind announced its first fully automated research lab opening in the UK next year, using AI and robotics to run experiments autonomously. This is a direct response to Runway’s world models and signals the race to automate science itself. The country that can automate research and iterate faster gains compounding advantage.

Broadcom Q4 AI Revenue Doubles to $8.2 Billion — Broadcom reported Q4 revenue up 28 percent YoY with AI chip sales alone hitting $8.2B and doubling year-over-year. The company is now so dependent on AI infrastructure spending that any slowdown in capex from the hyperscalers becomes an existential threat. Broadcom has become a direct barometer of how serious the market is about AI spending.

Nvidia Software Could Track Where Its Chips End Up — Nvidia released opt-in software that may reveal where its GPUs are operating, aligning with Washington’s push to track restricted chips headed to adversaries. This is voluntary telemetry that doubles as compliance infrastructure. Watch for whether it becomes de facto mandatory as export control enforcement tightens.

Terraform Labs Co-Founder Do Kwon Sentenced to 15 Years — Do Kwon received a 15-year prison sentence for conspiracy and wire fraud in the Terra collapse. The severity signals that regulators are willing to use criminal law aggressively against crypto fraud. This may deter future schemes or simply shift them into jurisdictions with weaker enforcement.

Scanning the Wire

  • Disney’s Licensing Deal Signals IP Monetization Strategy — Rather than litigate against every AI company, Disney found licensing Mickey Mouse and Star Wars characters to OpenAI for Sora more profitable. This model will likely spread as other IP holders realize they can extract value from generative AI rather than block it.

  • Trump Threatens States With Funding Cuts Over AI Laws — The executive order directs Commerce to identify states with “conflicting” AI laws and potentially strip them of rural broadband funding. This is regulatory coercion by budget mechanism, bypassing congressional gridlock.

  • Anthropic Commits $21B to Google TPU Infrastructure — Broadcom revealed that Anthropic ordered \(10B in Q3 and \)11B in Q4 for Google’s Ironwood TPU racks. The scale suggests Anthropic is matching OpenAI’s infrastructure bet, even as it lacks OpenAI’s revenue or profitability.

  • Google and OpenAI Launch Major Models on Same Day — GPT-5.2 claims 70 percent human-level work task performance while Google released Deep Research tools and embedded capabilities. Both are racing into agents and multimodal systems beyond language.

  • Runway’s World Models Enter Commercial Development — The GWM-1 family claims minutes-long coherent simulations, opening applications in robotics, avatar generation, and video synthesis. This is moving simulation from academic research into production tools.

  • Reddit Challenges Australian Age Ban in High Court — Reddit filed a legal challenge against Australia’s under-16 social media ban, arguing it curbs political speech. This signals tech companies are willing to fight regulatory approaches that treat age and identity as control points.

  • React Server Components Vulnerability Exposes Secrets — A denial-of-service and source code exposure bug in React Server Components, combined with 10K Docker images leaking live cloud credentials, show that infrastructure complexity is outpacing security practices.

  • LastPass Fined 1.2M Pounds by UK Regulator — The ICO’s penalty for the 2022 breach signals regulators will pursue penalties against identity/password companies with disproportionate care. Expect stricter compliance requirements for security-critical infrastructure.

  • Tools for Humanity Launches Crypto-Integrated Super App — World by Tools for Humanity launched with crypto payments and encrypted chat, seeking to expand its “real human network.” This represents another attempt to build a consumer platform atop biometric identity and crypto infrastructure.

  • Salt Typhoon Spies Attended Cisco Training — Researchers claim Salt Typhoon operatives attended Cisco training schemes, gaining skills later used in Chinese cyber operations. This shows state actors are willing to invest in long-term infiltration and skill development inside target companies.

Outlier

Trump Contradicts MAGA Base on AI While Empowering Silicon Valley — Trump signed an AI executive order that horrified his base by defending Nvidia chip sales to China and siding with tech companies over state regulators. This reveals a fundamental split: Trump’s transactional relationship with Silicon Valley CEOs like Jensen Huang and Sam Altman now supersedes traditional Republican positions on sovereignty and state power. The pattern suggests tech company interests have become a direct line to presidential authority, bypassing both Congress and traditional party ideology. This concentration of CEO influence into unelected White House roles (David Sacks as AI czar) signals a shift toward corporate-state fusion that tech incumbents will leverage aggressively.

See you all in the next signal. The AI regulation story is no longer about whether companies will be regulated. It’s about who gets to write the rules and who gets left out.