China's AI price war is entering a new phase
The shift follows aggressive price cuts after low-cost Chinese AI models such as DeepSeek intensified competition across the industry.
China's artificial intelligence price war is progressing to a new stage. Rather than offering blanket reductions on token pricing, businesses are now competing based on the cost of executing AI tasks, according to a Bank of America report released on Thursday. This transition follows substantial token price cuts following the emergence of budget-friendly Chinese AI models like DeepSeek, which heightened competition across the sector.
The economic landscape is shifting, states Bank of America analysts led by Winnie Wu, who head Asia equity strategy and co-head China equity research. Companies are increasingly competing on the efficiency with which their AI systems complete tasks rather than merely on the low cost of processing tokens. Advanced models boasting superior reasoning, extended context windows, multimodal capabilities, and agentic workflows can still be priced higher, the analysts reported.
Simple inference tasks are becoming more standardized, while cutting-edge capabilities remain unique. The primary economic indicator is evolving from price per token to cost per completed task, they added. This shift is also occurring as decades of US-led export controls have accelerated China's pursuit of domestic AI technology, further fueling competition as more firms join the industry.
The evolving economics could also alter where profits are generated in China's AI sector, based on the bank's analysis. The most promising long-term profits are projected to come from AI chips, semiconductor equipment, memory, and large cloud platforms, rather than individual AI model creators, the analysts wrote. This trend is not exclusive to China.
Companies are increasingly selecting various AI models for different tasks based on cost and performance, instead of sticking to a single model, Business Insider reported in July.
Written by urgent.news from Business Insider's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
