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European Union flags flutter outside the EU Commission headquarters, in Brussels, Belgium, February 1, 2023

Yves Herman | Reuters

When Gerard de Graaf moved from Europe to San Francisco almost a year ago, his job had a very different feel to it.

De Graaf, a 30-year veteran of the European Commission, was tasked with resurrecting the EU office in the Bay Area. His title is senior envoy for digital to the U.S., and since September his main job has been to help the tech industry prepare for new legislation called The Digital Services Act (DSA), which goes into effect Friday.

At the time of his arrival, the metaverse trumped artificial intelligence as the talk of the town, tech giants and emerging startups were cutting thousands of jobs, and the Nasdaq was headed for its worst year since the financial crisis in 2008.

Within de Graaf’s purview, companies including Meta, Google, Apple and Amazon have had since April to get ready for the DSA, which takes inspiration from banking regulations. They face fines of as much as 6% of annual revenue if they fail to comply with the act, which was introduced in 2020 by the EC (the executive arm of the EU) to reduce the spread of illegal content online and provide more accountability.

Coming in as an envoy, de Graaf has seen more action than he expected. In March, there was the sudden implosion of the iconic Silicon Valley Bank, the second-largest bank failure in U.S. history. At the same time, OpenAI’s ChatGPT service, launched late last year, was setting off an arms race in generative AI, with tech money pouring into new chatbots and the large language models (LLMs) powering them.

It was a “strange year in many, many ways,” de Graaf said, from his office, which is co-located with the Irish Consulate on the 23rd floor of a building in downtown San Francisco. The European Union hasn’t had a formal presence in Silicon Valley since the 1990s.

De Graaf spent much of his time meeting with top executives, policy teams and technologists at the major tech companies to discuss regulations, the impact of generative AI and competition. Although regulations are enforced by the EC in Brussels, the new outpost has been a useful way to foster a better relationship between the U.S. tech sector and the EU, de Graaf said.

“I think there’s been a conversation that we needed to have that did not really take place,” said de Graaf. With a hint of sarcasm, de Graaf said that somebody with “infinite wisdom” decided the EU should step back from the region during the internet boom, right “when Silicon Valley was taking off and going from strength to strength.”

The thinking at the time within the tech industry, he said, was that the internet is a “different technology that moves very fast” and that “policymakers don’t understand it and can’t regulate it.”

Facebook Chairman and CEO Mark Zuckerberg arrives to testify before the House Financial Services Committee on “An Examination of Facebook and Its Impact on the Financial Services and Housing Sectors” in the Rayburn House Office Building in Washington, DC on October 23, 2019.

Mandel Ngan | AFP | Getty Images

However, some major leaders in tech have shown signs that they’re taking the DSA seriously, de Graaf said. He noted that Meta CEO Mark Zuckerberg met with Thierry Breton, the EU commissioner for internal market, to go over some of the specifics of the rules, and that X owner Elon Musk has publicly supported the DSA after meeting with Breton.

De Graaf said he’s seeing “a bit more respect and understanding for the European Union’s position, and I think that has accelerated after generative AI.”

‘Serious commitment’

X, formerly known as Twitter, had withdrawn from the EU’s voluntary guidelines for countering disinformation. There was no penalty for not participating, but X must now comply with the DSA, and Breton said after his meeting with Musk that “fighting disinformation will be a legal obligation.”

“I think, in general, we’ve seen a serious commitment of big companies also in Europe and around the world to be prepared and to prepare themselves,” de Graaf said.

The new rules require platforms with at least 45 million monthly active users in the EU to provide risk assessment and mitigation plans. They also must allow for certain researchers to have inspection access to their services for harms and provide more transparency to users about their recommendation systems, even allowing people to tweak their settings.

Timing could be a challenge. As part of their cost-cutting measures implemented early this year, many companies laid off members of their trust and safety teams.

“You ask yourself the question, will these companies still have the capacity to implement these new regulations?” de Graaf said. “We’ve been assured by many of them that in the process of layoffs, they have a renewed sense of trust and safety.”

The DSA doesn’t require that tech companies maintain a certain number of trust and safety workers, de Graaf said, just that they comply with the law. Still, he said one social media platform that he declined to name gave an answer “that was not entirely reassuring” when asked how it plans to monitor for disinformation in Poland during the upcoming October elections, as the company has only one person in the region.

That’s why the rules include transparency about what exactly the platforms are doing.

“There’s a lot we don’t know, like how these companies moderate content,” de Graaf said. “And not just their resources, but also how their decisions are made with which content will stay and which content is taken down.”

AI is the next trend to watch when it comes to smartphones, says market research firm

De Graaf, a Dutchman who’s married with two kids, has spent the past three decades going deep on regulatory issues for the EC. He previously worked on the Digital Services Act and Digital Markets Act, European legislation targeted at consumer protection and rights and enhancing competition.

This isn’t his first stint in the U.S. From 1997 to 2001, he worked in Washington, D.C., as “trade counsellor at the European Commission’s Delegation to the United States,” according to his bio.

For all the talk about San Francisco’s “doom loop,” de Graaf said he sees a different level of energy in the city as well as further south in Silicon Valley.

There’s still “so much dynamism” in San Francisco, he said, adding that it’s filled with “such interesting people and objective people that I find incredibly refreshing.”

“I meet very, very interesting people here in Silicon Valley and in San Francisco,” he said. “And it’s not just the companies that are kind of avant-garde as the people behind them, so the conversations you have here with people are really rewarding.”

The generative AI boom

Generative AI was a virtually foreign concept when de Graaf arrived in San Francisco last September. Now, it’s about the only topic of conversation at tech conferences and cocktail parties.

The rise and rapid spread of generative AI has led to a number of big tech companies and high-profile executives calling for regulations, citing the technology’s potential influence on society and the economy. In June, the European Parliament cleared a major step in passing the EU AI Act, which would represent the EU’s package of AI regulations. It’s still a long way from becoming law.

De Graaf noted the irony in the industry’s attitude. Tech companies that have for years criticized the EU for overly aggressive regulations are now asking, “Why is it taking you so long?” de Graaf said.

“We will hopefully have an agreement on the text by the end of this year,” he said. “And then we always have these transitional periods where the industry needs to prepare, and we need to prepare. That might be two years or a year and a half.”

The rapidly changing landscape of generative AI makes it tricky for the EU to quickly formulate regulations.

“Six months ago, I think our big concern was to legislate the handful of companies — the extremely powerful, resource rich companies — that are going to dominate,” de Graaf said.

But as more powerful LLMs become available for people to use for free, the technology is spreading, making regulation more challenging as it’s not just about dealing with a few big companies. De Graaf has been meeting with local universities like Stanford to learn about transparency into the LLMs, how researchers can access the technology and what kind of data companies could provide to lawmakers about their software.

One proposal being floated in Europe is the idea of publicly funded AI models, so control isn’t all in the hands of big U.S. companies.

“These are questions that policymakers in the U.S. and all around the world are asking themselves,” de Graaf said. “We don’t have a crystal ball where we can just predict everything that’s happening.”

Even if there are ways to expand how AI models are developed, there’s little doubt about where the money is flowing for processing power. Nvidia, which just reported blowout earnings for the latest quarter and has seen its stock price triple in value this year, is by far the leader in providing the kind of chips needed to power generative AI systems.

“That company, they have a unique value proposition,” de Graaf said. “It’s unique not because of scale or a network effect, but because their technology is so advanced that it has no competition.”

He said that his team meets “quite regularly” with Nvidia and its policy team and they’ve been learning “how the semiconductor market is evolving.”

“That’s a useful source information for us, and of course, where the technology is going,” de Graaf said. “They know where a lot of the industries are stepping up and are on the ball or are going to move more quickly than other industries.”

WATCH: Former White House CTO Aneesh Chopra on A.I. regulation

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How Elon Musk’s plan to slash government agencies and regulation may benefit his empire

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How Elon Musk’s plan to slash government agencies and regulation may benefit his empire

Elon Musk’s business empire is sprawling. It includes electric vehicle maker Tesla, social media company X, artificial intelligence startup xAI, computer interface company Neuralink, tunneling venture Boring Company and aerospace firm SpaceX. 

Some of his ventures already benefit tremendously from federal contracts. SpaceX has received more than $19 billion from contracts with the federal government, according to research from FedScout. Under a second Trump presidency, more lucrative contracts could come its way. SpaceX is on track to take in billions of dollars annually from prime contracts with the federal government for years to come, according to FedScout CEO Geoff Orazem.

Musk, who has frequently blamed the government for stifling innovation, could also push for less regulation of his businesses. Earlier this month, Musk and former Republican presidential candidate Vivek Ramaswamy were tapped by Trump to lead a government efficiency group called the Department of Government Efficiency, or DOGE.

In a recent commentary piece in the Wall Street Journal, Musk and Ramaswamy wrote that DOGE will “pursue three major kinds of reform: regulatory rescissions, administrative reductions and cost savings.” They went on to say that many existing federal regulations were never passed by Congress and should therefore be nullified, which President-elect Trump could accomplish through executive action. Musk and Ramaswamy also championed the large-scale auditing of agencies, calling out the Pentagon for failing its seventh consecutive audit. 

“The number one way Elon Musk and his companies would benefit from a Trump administration is through deregulation and defanging, you know, giving fewer resources to federal agencies tasked with oversight of him and his businesses,” says CNBC technology reporter Lora Kolodny.

To learn how else Elon Musk and his companies may benefit from having the ear of the president-elect watch the video.

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Why X’s new terms of service are driving some users to leave Elon Musk’s platform

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Why X's new terms of service are driving some users to leave Elon Musk's platform

Elon Musk attends the America First Policy Institute gala at Mar-A-Lago in Palm Beach, Florida, Nov. 14, 2024.

Carlos Barria | Reuters

X’s new terms of service, which took effect Nov. 15, are driving some users off Elon Musk’s microblogging platform. 

The new terms include expansive permissions requiring users to allow the company to use their data to train X’s artificial intelligence models while also making users liable for as much as $15,000 in damages if they use the platform too much. 

The terms are prompting some longtime users of the service, both celebrities and everyday people, to post that they are taking their content to other platforms. 

“With the recent and upcoming changes to the terms of service — and the return of volatile figures — I find myself at a crossroads, facing a direction I can no longer fully support,” actress Gabrielle Union posted on X the same day the new terms took effect, while announcing she would be leaving the platform.

“I’m going to start winding down my Twitter account,” a user with the handle @mplsFietser said in a post. “The changes to the terms of service are the final nail in the coffin for me.”

It’s unclear just how many users have left X due specifically to the company’s new terms of service, but since the start of November, many social media users have flocked to Bluesky, a microblogging startup whose origins stem from Twitter, the former name for X. Some users with new Bluesky accounts have posted that they moved to the service due to Musk and his support for President-elect Donald Trump.

Bluesky’s U.S. mobile app downloads have skyrocketed 651% since the start of November, according to estimates from Sensor Tower. In the same period, X and Meta’s Threads are up 20% and 42%, respectively. 

X and Threads have much larger monthly user bases. Although Musk said in May that X has 600 million monthly users, market intelligence firm Sensor Tower estimates X had 318 million monthly users as of October. That same month, Meta said Threads had nearly 275 million monthly users. Bluesky told CNBC on Thursday it had reached 21 million total users this week.

Here are some of the noteworthy changes in X’s new service terms and how they compare with those of rivals Bluesky and Threads.

Artificial intelligence training

X has come under heightened scrutiny because of its new terms, which say that any content on the service can be used royalty-free to train the company’s artificial intelligence large language models, including its Grok chatbot.

“You agree that this license includes the right for us to (i) provide, promote, and improve the Services, including, for example, for use with and training of our machine learning and artificial intelligence models, whether generative or another type,” X’s terms say.

Additionally, any “user interactions, inputs and results” shared with Grok can be used for what it calls “training and fine-tuning purposes,” according to the Grok section of the X app and website. This specific function, though, can be turned off manually. 

X’s terms do not specify whether users’ private messages can be used to train its AI models, and the company did not respond to a request for comment.

“You should only provide Content that you are comfortable sharing with others,” read a portion of X’s terms of service agreement.

Though X’s new terms may be expansive, Meta’s policies aren’t that different. 

The maker of Threads uses “information shared on Meta’s Products and services” to get its training data, according to the company’s Privacy Center. This includes “posts or photos and their captions.” There is also no direct way for users outside of the European Union to opt out of Meta’s AI training. Meta keeps training data “for as long as we need it on a case-by-case basis to ensure an AI model is operating appropriately, safely and efficiently,” according to its Privacy Center. 

Under Meta’s policy, private messages with friends or family aren’t used to train AI unless one of the users in a chat chooses to share it with the models, which can include Meta AI and AI Studio.

Bluesky, which has seen a user growth surge since Election Day, doesn’t do any generative AI training. 

“We do not use any of your content to train generative AI, and have no intention of doing so,” Bluesky said in a post on its platform Friday, confirming the same to CNBC as well.

Liquidated damages

Bluesky CEO: Our platform is 'radically different' from anything else in social media

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The Pentagon’s battle inside the U.S. for control of a new Cyber Force

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The Pentagon's battle inside the U.S. for control of a new Cyber Force

A recent Chinese cyber-espionage attack inside the nation’s major telecom networks that may have reached as high as the communications of President-elect Donald Trump and Vice President-elect J.D. Vance was designated this week by one U.S. senator as “far and away the most serious telecom hack in our history.”

The U.S. has yet to figure out the full scope of what China accomplished, and whether or not its spies are still inside U.S. communication networks.

“The barn door is still wide open, or mostly open,” Senator Mark Warner of Virginia and chairman of the Senate Intelligence Committee told the New York Times on Thursday.

The revelations highlight the rising cyberthreats tied to geopolitics and nation-state actor rivals of the U.S., but inside the federal government, there’s disagreement on how to fight back, with some advocates calling for the creation of an independent federal U.S. Cyber Force. In September, the Department of Defense formally appealed to Congress, urging lawmakers to reject that approach.

Among one of the most prominent voices advocating for the new branch is the Foundation for Defense of Democracies, a national security think tank, but the issue extends far beyond any single group. In June, defense committees in both the House and Senate approved measures calling for independent evaluations of the feasibility to create a separate cyber branch, as part of the annual defense policy deliberations.

Drawing on insights from more than 75 active-duty and retired military officers experienced in cyber operations, the FDD’s 40-page report highlights what it says are chronic structural issues within the U.S. Cyber Command (CYBERCOM), including fragmented recruitment and training practices across the Army, Navy, Air Force, and Marines.

“America’s cyber force generation system is clearly broken,” the FDD wrote, citing comments made in 2023 by then-leader of U.S. Cyber Command, Army General Paul Nakasone, who took over the role in 2018 and described current U.S. military cyber organization as unsustainable: “All options are on the table, except the status quo,” Nakasone had said.

Concern with Congress and a changing White House

The FDD analysis points to “deep concerns” that have existed within Congress for a decade — among members of both parties — about the military being able to staff up to successfully defend cyberspace. Talent shortages, inconsistent training, and misaligned missions, are undermining CYBERCOM’s capacity to respond effectively to complex cyber threats, it says. Creating a dedicated branch, proponents argue, would better position the U.S. in cyberspace. The Pentagon, however, warns that such a move could disrupt coordination, increase fragmentation, and ultimately weaken U.S. cyber readiness.

As the Pentagon doubles down on its resistance to establishment of a separate U.S. Cyber Force, the incoming Trump administration could play a significant role in shaping whether America leans toward a centralized cyber strategy or reinforces the current integrated framework that emphasizes cross-branch coordination.

Known for his assertive national security measures, Trump’s 2018 National Cyber Strategy emphasized embedding cyber capabilities across all elements of national power and focusing on cross-departmental coordination and public-private partnerships rather than creating a standalone cyber entity. At that time, the Trump’s administration emphasized centralizing civilian cybersecurity efforts under the Department of Homeland Security while tasking the Department of Defense with addressing more complex, defense-specific cyber threats. Trump’s pick for Secretary of Homeland Security, South Dakota Governor Kristi Noem, has talked up her, and her state’s, focus on cybersecurity.

Former Trump officials believe that a second Trump administration will take an aggressive stance on national security, fill gaps at the Energy Department, and reduce regulatory burdens on the private sector. They anticipate a stronger focus on offensive cyber operations, tailored threat vulnerability protection, and greater coordination between state and local governments. Changes will be coming at the top of the Cybersecurity and Infrastructure Security Agency, which was created during Trump’s first term and where current director Jen Easterly has announced she will leave once Trump is inaugurated.

Cyber Command 2.0 and the U.S. military

John Cohen, executive director of the Program for Countering Hybrid Threats at the Center for Internet Security, is among those who share the Pentagon’s concerns. “We can no longer afford to operate in stovepipes,” Cohen said, warning that a separate cyber branch could worsen existing silos and further isolate cyber operations from other critical military efforts.

Cohen emphasized that adversaries like China and Russia employ cyber tactics as part of broader, integrated strategies that include economic, physical, and psychological components. To counter such threats, he argued, the U.S. needs a cohesive approach across its military branches. “Confronting that requires our military to adapt to the changing battlespace in a consistent way,” he said.

In 2018, CYBERCOM certified its Cyber Mission Force teams as fully staffed, but concerns have been expressed by the FDD and others that personnel were shifted between teams to meet staffing goals — a move they say masked deeper structural problems. Nakasone has called for a CYBERCOM 2.0, saying in comments early this year “How do we think about training differently? How do we think about personnel differently?” and adding that a major issue has been the approach to military staffing within the command.

Austin Berglas, a former head of the FBI’s cyber program in New York who worked on consolidation efforts inside the Bureau, believes a separate cyber force could enhance U.S. capabilities by centralizing resources and priorities. “When I first took over the [FBI] cyber program … the assets were scattered,” said Berglas, who is now the global head of professional services at supply chain cyber defense company BlueVoyant. Centralization brought focus and efficiency to the FBI’s cyber efforts, he said, and it’s a model he believes would benefit the military’s cyber efforts as well. “Cyber is a different beast,” Berglas said, emphasizing the need for specialized training, advancement, and resource allocation that isn’t diluted by competing military priorities.

Berglas also pointed to the ongoing “cyber arms race” with adversaries like China, Russia, Iran, and North Korea. He warned that without a dedicated force, the U.S. risks falling behind as these nations expand their offensive cyber capabilities and exploit vulnerabilities across critical infrastructure.

Nakasone said in his comments earlier this year that a lot has changed since 2013 when U.S. Cyber Command began building out its Cyber Mission Force to combat issues like counterterrorism and financial cybercrime coming from Iran. “Completely different world in which we live in today,” he said, citing the threats from China and Russia.

Brandon Wales, a former executive director of the CISA, said there is the need to bolster U.S. cyber capabilities, but he cautions against major structural changes during a period of heightened global threats.

“A reorganization of this scale is obviously going to be disruptive and will take time,” said Wales, who is now vice president of cybersecurity strategy at SentinelOne.

He cited China’s preparations for a potential conflict over Taiwan as a reason the U.S. military needs to maintain readiness. Rather than creating a new branch, Wales supports initiatives like Cyber Command 2.0 and its aim to enhance coordination and capabilities within the existing structure. “Large reorganizations should always be the last resort because of how disruptive they are,” he said.

Wales says it’s important to ensure any structural changes do not undermine integration across military branches and recognize that coordination across existing branches is critical to addressing the complex, multidomain threats posed by U.S. adversaries. “You should not always assume that centralization solves all of your problems,” he said. “We need to enhance our capabilities, both defensively and offensively. This isn’t about one solution; it’s about ensuring we can quickly see, stop, disrupt, and prevent threats from hitting our critical infrastructure and systems,” he added.

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