Why things will eventually fall apart

2025-06-07 · Source: Marcus on AI · Field: Finance & Economics — Capital Markets & Investment Management, Economic Analysis & Policy, Personal Finance & Wealth Planning · Depth: Intermediate, short

Summary

The article argues that the current AI market, particularly for large language models (LLMs), is unsustainable due to a lack of competitive moats and impending price wars. It highlights that major players, including Google, are pursuing similar technical solutions with similar data, leading to commoditization rather than winner-take-all dominance. The author notes growing skepticism in both public discourse (e.g., a widely viewed X post about Google's equity financing) and financial circles, citing discussions with investors like Steve Eisman and George Noble. Concerns about the commercial viability of the LLM industry, the end of "tokenmaxxing," and questioning of corporate ROI (e.g., Bain's conclusions) are increasing. The author predicts that 2026 will see retail investors and index funds "holding the bag" as valuations for companies like Anthropic and OpenAI prove unsustainable, echoing economist Brad DeLong's view that no visible path justifies their implied high-margin franchises.

Key takeaway

For investors considering AI-focused funds or direct investments in LLM companies like Anthropic or OpenAI, you should critically evaluate current valuations against the long-term commercial viability. The market's lack of competitive moats and impending price commoditization suggest significant downside risk. Diversify your portfolio and avoid overexposure to companies relying on "winner-take-all" assumptions, as 2026 may see retail investors "holding the bag."

Key insights

The AI market, especially for LLMs, lacks moats, leading to commoditization, price wars, and unsustainable valuations.

Principles

• Similar AI solutions create no competitive moats.
• Lack of moats leads to price wars and commoditization.
• High LLM valuations are not justified by visible paths.

Topics

• AI Market Dynamics
• Large Language Models
• Competitive Moats
• Market Valuation
• Retail Investor Risk
• Price Commoditization

Best for: AI Product Manager, Entrepreneur, Investor, Consultant, Director of AI/ML

Related on AIssential

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• The ‘AI is inevitable’ trap — Public sentiment towards AI is souring despite its advancements, creating a market paradox.
• Donkeys, Not Unicorns — AI's commoditization erodes traditional startup moats, necessitating new entrepreneurial models beyond venture-backed unicorns.
• OpenAI's Momentum is Spiraling Down ▼ — OpenAI is losing market share, talent, and investor confidence to rivals like Anthropic and Google.
• As the tech mega-IPO race heats up, has OpenAI missed its moment? — OpenAI's struggle to monetize ChatGPT highlights the high costs and competitive pressures in the rapidly evolving AI market.

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Editorial summary, takeaway, and curation by AIssential. Original article published by Marcus on AI.