The news: California Gov. Gavin Newsom signed an executive order adding new restrictions around government contracts with AI firms. The state is home to 33 of the top 50 privately held AI companies worldwide.

The order takes four main actions:

• Requires companies seeking government contracts to clearly outline how they handle AI safety and data privacy.
• Reviews whether AI tools enable surveillance or restrict free speech, and how they prevent bias or distribution of illegal content.
• Allows the state to assess companies flagged by the federal government as a supply chain risk—as the Pentagon recently did with AI startup Anthropic—and still let the vendor work with the state if it passes.
• Directs state agencies to start watermarking any AI-generated videos they create.

Newsom vetoed a previous bill in 2024 that would have required AI developers to build “kill switches” for models and established testing requirements for models before release.

Why it’s worth watching: AI policy in the US is increasingly pulling in two directions. The lack of a federal framework indicates indecision over how much control the government should hold over AI development, alongside concern that overreach could stop domestic companies from competing globally.

• States are stepping in with their own oversight frameworks focused on safety, bias, and transparency.
• The result is a growing patchwork of rules that could change how major tech companies operate, forcing them to balance fast innovation with regulatory scrutiny.

US President Donald Trump contends that a hands-off approach is needed to help American companies dominate in the global Al race, and some state measures are facing resistance.

• In March, an AI bill failed to pass in Florida after Trump’s opposition to state intervention.
• Last summer, Colorado delayed an AI transparency bill amid backlash from the White House and major tech companies.

Implications for the industry: The stakes are especially high for California-based tech giants like Apple, OpenAI, and Meta, which may need to adjust how they develop and deploy AI to meet evolving state-level requirements.

• California’s executive order could set de facto standards that ripple across the broader US AI market.
• Navigating a growing patchwork of state rules, which may be inconsistent at times, could become as critical as competing in the global AI race itself.

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