What's up: AI's everything-all-at-once economy; AI comes for the consultants; Disney grapples with AI; anticipating quantum.

Good morning. Legal services are at the forefront of AI transformation right after software development and customer service. From synthesizing and summarizing research to drafting and reviewing contracts, AI has emerged as a powerful tool for the profession.

We spoke with Ed Black, senior counsel and technology strategy leader at Ropes & Gray, about how his legal firm approaches competitive advantage when all firms have access to powerful AI models.

Today we explore Ropes & Gray's AI strategy and offer insights into a continuing tidal wave of AI news.

WSJLI: When you pitch clients, how much does your use of AI come into the conversation? And how do you know how much or how little AI they’ll want you to use?

Black: We worry about that 24/7. The very first reaction from many clients when ChatGPT came out was to send us engagement letters saying: "Never use AI for us." The clients were very quick to see the potential downsides. Now, scroll forward to where we are now, I think as compared to that initial reaction, there has been a client sea change. And candidly, it wasn’t slow. It went from "no, never use it," to "why aren't you using it yet?"

WSJLI: How are you using AI compared to your competitors?

Black: Right after ChatGPT broke through some firms announced that they were hiring software engineers and were going to start building things. There are people who say, "the way we'll have the competitive advantage is we'll have ground-up proprietary platforms." 

We are not making structural moves. We're not forming entire new business entities that are hanging off our corporate org chart. We are working really, really hard to find the best products, and get them adopted as quickly as possible.

WSJLI: Why do you disagree with the idea that proprietary platforms can provide a competitive advantage? And if not in proprietary platforms, where is your competitive advantage?

Black: We have a competitive advantage by having a really smart team that does that configuration and value-added layer that makes it just right for the client.

If you have a proprietary product that's built inside a law firm, the only way that that proprietary product can remain competitive for more than just a few months is if you also have a software company inside the law firm that's hiring, training, building, has capital invested and is available to support the development of this. If you built it yourself, yeah you built it, but unless you're a software company, now you're stuck with it.

— Isabelle Bousquette 

Disney grapples with AI's impact. It was always obvious that the technology had the potential to disrupt filmmaking. Perhaps no entertainment studio has as much to gain from the AI revolution ... and as much to lose. Disney tells the WSJ that it is balancing the desire to embrace the technology while remaining protective of the studio’s characters and stories.

In June, Disney and Comcast’s Universal sued AI provider Midjourney for allegedly making copies of their copyrighted properties. The lawsuit is seen by Disney’s competitors as the strongest effort yet to establish a legal framework for AI issues.

AI's impact is not limited to any one company or market. AI is having an impact on everything all at once, from macro areas like labor and hiring and the economy to the way big companies price things.

Delta gets blowback for using AI to set airfares. The airline is trying to calm a firestorm of objections from lawmakers and consumer advocates after announcing it was testing AI to optimize pricing. 

Trump administration to make pitch for American AI. The Trump administration is expected to tout its strategy for exporting American AI for a 21-nation Asia-Pacific Economic Cooperation meeting in South Korea focused on technology, which begins Monday, U.S. officials said. Chinese officials will be at the event pitching their AI products. Many countries now use DeepSeek’s product and models from other Chinese companies such as Alibaba Group Holding.

Is the U.S. economy starting to look like just a bunch of data centers? Financing the AI boom is straining the companies and capital markets, says the WSJ's Greg Ip. Since the first quarter of 2023, investment in information processing equipment like GPUs, memory chips, networking gear, etc. has expanded 23%, after inflation. Total gross domestic product has expanded just 6%.

And in the past two quarters, capex spending for AI contributed more to growth than all of consumer spending as Neil Dutta, head of economic research at Renaissance Macro Research, earlier told the WSJ's Christopher Mims.

It can't go on forever, can it? AI's financial return remains a question mark. Ip notes, with AI leaders OpenAI and Anthropic still losing money.

At the same time, a dot-com-style bust looks far-fetched now. AI’s big spenders are mature and profitable companies. 

For example, one can credit a good chunk of Microsoft’s blockbuster earnings last week to non-AI products. More than half of Azure’s 33% revenue jump in the company’s March quarter came from non-AI services, says the WSJ's Asa Fitch.

Jobs in the age of AI. The WSJ credits a perfect storm of factors that contributed to July's weak job numbers and the downward revision for May and June numbers: Tariffs, workplace raids and federal workforce cutbacks.

It might be too early to fully describe AI's role in all of this, but some chief executives have grown increasingly comfortable touting shrinking headcounts while chalking up AI wins, as the WSJ earlier reported.

Consulting is emerging as an early and high-profile test case for how dramatically an industry must shift to stay relevant in the AI era.

McKinsey has reduced its head count from about 45,000 people in 2023 to 40,000 through layoffs and attrition, in part to correct for an aggressive pandemic hiring spree. It has since also rolled out roughly 12,000 AI agents.

Bob Sternfels, the firm’s global managing partner, tells the WSJ that the firm still plans to hire “aggressively” in the coming years.

Executives on how quantum computing could change the world. “Quantum today is kind of where GPUs were in 2012,” IBM Chief Executive Arvind Krishna, told the WSJ Leadership Institute's Isabelle Bousquette at the Global Quantum Forum in Chicago last month. “In 2012, nobody was counting on GPUs as a big business. But I think it’s going to go faster.”

Companies today are working to figure out which of their business cases are best suited for quantum computing. The WSJLI talked with several executives on how they see the technology having an impact. 

Faster internet. Being able to calculate, in real time, all the variables to determine the optimal flow of data and deliver it at the fastest speeds for the highest number of people is something conventional computers struggle with. “That’s something that quantum could do extremely well,” said Elad Nafshi, Comcast’s chief network officer.

More affordable insurance. Today’s pricing models are simpler and don’t take into account every possible risk factor, the company said. Quantum could be poised to help. “It would just run billions of simulations,” said Allstate CEO Tom Wilson, “Quantum computing could help us get the right price for every house…And that’s impossible to do with today’s algorithms.”

More sustainable food production. Startup PsiQuantum is investigating whether quantum computing could help find more energy-efficient methods for producing nitrogen fertilizer, a critical component in the world’s food production. “We cannot simulate even a small part of that enzyme on any conventional computer that we have, nor on any conventional computer that we could ever build,” said Chief Executive Jeremy O’Brien.

China is limiting the flow of critical minerals to Western defense manufacturers, delaying production and forcing companies to scour the world for stockpiles of the minerals needed to make everything from bullets to jet fighters. (WSJ)

A chief White House economic adviser said Sunday that President Trump wants his allies placed in the Bureau of Labor Statistics after the agency published a surprisingly dismal jobs report Friday and the president later fired its commissioner. (WSJ)

Consumer spending stagnated in the first half of this year, according to federal data issued last week, and the CEOs of Chipotle Mexican Grill, Kroger and Procter & Gamble, among others, are telling investors that their customers are more strapped—or appear to feel that way. (WSJ)

Texas Gov. Greg Abbott threatened to remove state House Democrats from office—or charge them with felonies—after dozens of members fled the state Sunday to thwart Republican plans to redraw the state’s congressional map to gain five new GOP seats. (WSJ)

The WSJ CIO Journal Team is Steven Rosenbush, Isabelle Bousquette and Belle Lin.

The editor, Tom Loftus, can be reached at thomas.loftus@wsj.com.