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This briefing examines the architectural transition away from transformer scaling strategies as senior researchers report performance plateau in pretraining results. It covers enterprise adoption of domain-specific small language models at AT&T and other organizations, the commercial emergence of world models from DeepMind, World Labs, and Runway targeting gaming and robotics applications, and the standardization of agent integration infrastructure through Anthropic’s Model Context Protocol now governed by the Linux Foundation. The episode also analyzes DeepSeek’s impact on AI infrastructure economics following its R1 release and competitive responses from Alibaba and Huawei, concluding with the convergence of small models, edge computing, and spatial reasoning capabilities enabling physical AI deployment.