Indeed, an EO is not law. It only applies to the federal executive branch's enforcement of existing federal law. State legislatures and agencies do not fall under any federal executive, unless they are in violation of federal law. This EO therefore is as vacuous as the pardon of a state prisoner is. If Trump believes "it is important for America to dominate AI", then it is important enough that he should go through the legislative process rather than threatening states.
One thing to note is that an EO doesn't fall under this because the President doesn't write laws, he only signs them