What's up: AI is a goldrush for data center construction workers; Tech titans amass war chests to fight AI regulation; Where are we with AI adoption among workers?

Good morning. Most of the worries about an AI bubble involve investments in businesses that built their large language models and other forms of generative AI on the concept of the transformer, an innovative type of neural network that eight years ago laid the foundations for the current boom.

But behind the scenes, artificial-intelligence researchers are pushing into new approaches that could pack an even bigger payoff.

One early-stage startup developing a transformer alternative, Palo Alto, Calif.-based Pathway, is announcing today that its “Dragon Hatchling” architecture now runs on Nvidia AI infrastructure and Amazon Web Services’ cloud and AI tech stack. Please read the full story, which the company shared exclusively with the WSJ Leadership Institute.

The company has shipped Dragon Hatchling architecture, but doesn’t plan to release the commercial models trained on it until next year. Once that happens, its Nvidia and AWS compatibility means companies would be able to put it into production “the next day,” Pathway said.

Dragon Hatchling imbues AI with memory that large language models can’t match, according to Pathway, theoretically enabling a new class of continuously learning, adaptive AI systems. The company also casts its approach as a potentially faster way to get to artificial general intelligence, which some people describe as similar to human-level cognitive ability.

Pathway isn’t alone in this quest. It regards large and well-established Anthropic as its biggest obstacle. It faces other challenges, too, such as convincing potential users who have just learned one set of AI vocabulary and skills that they should adopt something new.

Regardless of whether Pathway fulfills its ambitions, it will at least get a chance to make its case to the market. Its arrival also reinforces the intense scientific effort driving AI forward, even as big deals, big valuations and big personalities command the attention.

The company expects the architecture to have broad applications in solving problems in business, finance and beyond.

Pathway distinguishes between “commodity” AI tasks such as approving a customer discount and more demanding projects such as end-of-quarter financial planning. The technology could be useful in solving complex supply chain variability. For example, a steel manufacturer faced with a sudden shortage of tungsten could apply Pathway’s framework that can learn from limited amounts of private data, without exposing that data to the world. Other potential applications exist in areas such as fusion research, space exploration and optimization of global trading networks.

In all of these examples, the key is a need for real innovation. To come up with a new spaceship design, an AI model can’t just access lots of data on other spaceships and learn. It requires a model capable of generalizing or learning to reason, rather than pattern matching.

“We will speed up innovation cycles dramatically,” Zuzanna Stamirowska, co-founder and chief executive officer at Pathway said. “The problem with current transformer-based models is that they need a lot of data, and they don’t generalize outside….of what they have seen.”

I imagine that one of the challenges of leading a company right now is that when it comes to AI, the ground keeps shifting under everyone’s feet. If you turn on the water tap, you know what should come pouring out of the spout. Same with electricity. We know what is supposed to happen when we flick the switch. Not so with artificial intelligence, which is changing all of the time.

How are you keeping up with the quickly changing nature of AI? Use of links at the end of this newsletter and let us know.

Turns out that the tech-bubble didn't burst as expected in November. A late rally propelled stocks near record highs, with investor optimism over a potential Federal Reserve interest-rate cut.

The S&P 500 rose 0.5% on Friday, pushing it near a record set in late October and helping the index eke out a 0.1% monthly gain. Nasdaq, however, did register a monthly loss, its first since March, falling 1.5%.

Reporting earnings this week: Saleforce; Snowflake; Crowdstrike; Hewlett Packard Enterprise and MongoDB.

About that MIT study.  No, not the one about how 95% of generative AI pilots fail to deliver in a meaningful way, but a new one, with help from Oak Ridge National Laboratory, which finds that AI is potent enough to already replace 11.7% of the labor market. Both studies capture a broad spectrum of thought about AI's impact. Perhaps the reality lies somewhere in the middle. More below from the WSJ's Christopher Mims.

Despite all the hype, most companies are still barely getting started with AI, says WSJ Tech Columnist Christopher Mims. About two-thirds are stuck in the pilot phase, according to a recent report by consulting firm McKinsey.

The slowdown isn’t due to AI’s capabilities but to the difficulty of changing how people work. Even when companies give everyone access to AI tools, employees often don’t adopt them because workflows, habits, and team structures must be reorganized first. As researchers note, the barriers are human, legal, and cultural, not technical.

Early waves of computing didn’t boost productivity either, until organizations restructured around them. Today’s AI moment is following the same pattern, says Mims. Tools alone don’t transform productivity. Leadership-driven organizational change does.

Billionaires, tech firms, and advocacy groups are pouring over $150 million into competing super PACs ahead of the 2026 elections as they battle over AI regulation.

Leading the Future, backed by Andreessen Horowitz, Greg Brockman, and others, is funding pro-innovation candidates and opposing stricter state laws, WSJ reports. Its first public target is Alex Bores, a member of the New York State Assembly and software engineer who wrote the state’s AI safety bill.

PAC vs. PAC. A rival group, Public First, aims to raise $50 million to support candidates favoring stronger guardrails. Public First is being led by former Reps. Chris Stewart of Utah, a Republican, and Brad Carson of Oklahoma, a Democrat.

A construction boom for massive data centers is colliding with a severe nationwide shortage of skilled labor.

The construction industry is short roughly 439,000 workers, causing delays, backlogs, and fierce competition among contractors, WSJ reports.

For construction workers, it's a gold rush: Specialists such as electricians and project managers often see pay increases of 25%–30%. And companies are offering perks, including bonuses, paid time off, and premium break facilities. In data-center hubs like Northern Virginia, wages, union membership, and apprenticeship intake are rising sharply, reshaping local labor markets.

Taiwanese authorities raided the residence of an Intel executive as part of an investigation into the improper transfer of tech related to national security, WSJ reports. Wei-Jen Lo, a Taiwanese engineer who has led some of the industry’s biggest manufacturing breakthroughs, jumped to the U.S. chip maker from TSMC.

HSBC has partnered with French AI start-up Mistral to integrate its generative AI models across the bank for tasks such as analysis, translation, onboarding, and anti-money-laundering checks, FT reports. Mistral, valued near €12bn, is emerging as Europe’s strongest competitor to US AI giants. 

Defense-tech company Anduril promises to deliver hardware and software that will usher in a new era of autonomous warfare and equip the U.S. military with the speed that only a startup can offer. But it has faced multiple testing setbacks, including engine damage to its Fury unmanned jet fighter, a fire caused by its Anvil system, and battlefield issues in Ukraine such as drones vulnerable to jamming. 

Databricks has a new $5 billion fundraising round that values the data-analytics company at $134 billion, the Information reports. 

U.S. and Ukrainian negotiators said Sunday’s meeting on ending the war with Russia—which included talks on possible elections, land swaps and security guarantees—was productive, and top U.S. envoys will head to Moscow on Monday for further discussions. (WSJ)

Increasingly stretched consumers are starting to draw the line on what they will pay for a new car, according to dealers, analysts and industry data. Car buyers are downsizing, buying used vehicles, taking on longer car loans and holding out for deals. (WSJ)

More than any other generation, young adults are tightening their year-end spending budgets and shelling out less for gifts, survey data shows. That is a problem for retailers and brands that look to Generation Z to drive shopping trends. (WSJ)

Congress launched inquiries and lawmakers from both parties raised the possibility of war crimes after a report that the U.S. targeted survivors of a strike on an alleged drug boat. (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.