The whole justification for charging their sky high prices is that their model is genuinely more capable than others. If they put a pause on R&D, then DeepSeek will outpace them in a few months charging a fraction of what they do.
The real problem with the American AI business model is that LLMs are a generic commodity. It’s very hard for any one vendor to differentiate themselves from others. And in such scenarios, the profit trends to zero. There’s a race to the bottom where people keep lowering their margins because everyone else is.
So, this is why American labs want to create a cartel and control prices. They can’t afford the margins to drop to the cost of inference because they’re on a hook for insane amounts of money. So, they need the profit rate to stay high to justify themselves as a business.
Meanwhile, Chinese companies don’t have the same problem because they didn’t spend like mad on this tech. And price of electricity in China is also around a third of what it is in the US.
The whole justification for charging their sky high prices is that their model is genuinely more capable than others. If they put a pause on R&D, then DeepSeek will outpace them in a few months charging a fraction of what they do.
The real problem with the American AI business model is that LLMs are a generic commodity. It’s very hard for any one vendor to differentiate themselves from others. And in such scenarios, the profit trends to zero. There’s a race to the bottom where people keep lowering their margins because everyone else is.
So, this is why American labs want to create a cartel and control prices. They can’t afford the margins to drop to the cost of inference because they’re on a hook for insane amounts of money. So, they need the profit rate to stay high to justify themselves as a business.
Meanwhile, Chinese companies don’t have the same problem because they didn’t spend like mad on this tech. And price of electricity in China is also around a third of what it is in the US.
These charts are very illustrative incidentally:
https://hai.stanford.edu/news/inside-the-ai-index-12-takeaways-from-the-2026-report