China’s AI models spooked Wall Street. But they may turbocharge industry growth
Breakthroughs in cheap Chinese open-weight artificial intelligence models have spooked US investors, but analysts argue plummeting model costs will benefit the AI industry in the long run by supercharging global demand for AI systems. Companies across the AI industry have slashed prices in recent weeks, with large-language model (LLM) inference prices per million tokens falling from above US$2 at…
Recent breakthroughs in low-cost Chinese open-weight artificial intelligence models have caused concern among US investors, but analysts believe that falling model costs will ultimately boost the AI industry. In recent weeks, companies across the AI sector have slashed prices, with large-language model (LLM) inference prices per million tokens dropping from over US$2 at the start of June to just US$1.2.
In response, US firms such as OpenAI have offered discounts on their models to maintain market share. While this intense competition has led to a significant sell-off in AI stocks last month, analysts argue that it will ultimately benefit the industry in the long run.
According to Morgan Stanley analysts, competition and price reductions will encourage wider and faster adoption of AI agents, benefiting both consumers and enterprises. Jevons Paradox theory suggests that efficiency gains in resource use, such as computing power, lower costs and increase overall demand. Morgan Stanley outlined three possible outcomes of this competition: open-weight models winning could lead to drastic price reductions and faster enterprise adoption, closed systems could create a market oligopoly and slow down cost reductions, and a hybrid scenario where both open and closed models coexist could see closed frontier models dominate complex workloads while open-weight alternatives handle high-volume, cost-sensitive tasks.
Cloud service providers, including Microsoft, Amazon, and Google, would benefit from the competition, as stronger Chinese open-weight AI models strengthen their bargaining power. US tech stocks have rebounded following the release of Moonshot AI's Kimi K3 model, with Microsoft shares increasing by nearly 28% and Amazon climbing 20% since the previous week.
Despite concerns that cheaper Chinese AI may threaten US cloud giants, analysts argue that increased adoption of Chinese AI does not harm the overall demand for cloud platforms, but rather lowers monetization per unit of demand.
Written by urgent.news from South China Morning Post's reporting — not their text. Machine-written — it may contain errors, so check the original before relying on it.
