By Tycho Ferrigni · May 28, 2026 · 3 min read
The Economics of AI Are Starting to Shift
About a year ago, we published a perspective on where the AI market might be headed. At the time, three themes stood out:
- A wave of executive FOMO driving unprecedented investment into AI
- The potential for overinvestment—and the risk of a financial bubble
- The idea that, over time, the value created by AI may flow more to consumers than to shareholders
Those ideas were speculative back then. Today, early signals suggest they may already be playing out.
A Global Market Taking Shape
Two recent analyses highlight how quickly the competitive landscape is evolving.
The first focuses on how organizations are choosing among AI providers across the U.S., China, and Europe. It highlights an interesting divergence in AI firm behavior: some U.S.-based firms are becoming less open with their models, opting instead for tighter commercial control.
https://www.youtube.com/watch?v=yKydIeHoVbY
The second takes a closer look at China’s approach. Despite limited access to the most advanced chips due to export restrictions, Chinese firms are producing models that are increasingly competitive with their U.S. counterparts—at a fraction of the cost.
https://www.youtube.com/watch?v=9baDOfwUzHQ
Taken together, these dynamics point to something important:
The key question is whether the quality gap between U.S. and Chinese models can justify the pricing gap—and early signals suggest it may not.
When Quality Converges, Economics Change
If model performance continues to converge—or even holds steady—then the basis of competition shifts. When that happens:
- Pricing power erodes
- Model provider margins come under pressure
- Lower costs drive broader adoption across products and services
This is not unusual. We’ve seen this pattern before in cloud infrastructure, data storage, and compute. As capabilities mature and scale, they become cheaper and more widely accessible.
AI appears to be following a similar path—faster than many expected.
Final Thought
A year ago, the dominant narrative around AI was about possibility and getting into the AI game. Today, the conversation is shifting toward economics.
When this shift happens, investors tend to sharpen their pencils around future expectations—and bubbles don’t like sharp things.
