r/valueinvesting
On frontier models
Open-source AI catching up to paid models may destroy wealth for LLM builders, while benefiting software and hardware companies.
- Software companies building services on top of open-source models will thrive.
- Hardware companies will remain profitable due to the massive compute power required to run these models.
- Open-source models are reaching 80-90% of the quality of paid models and will eventually converge.
- General LLMs will cease to be a direct revenue-generating product, destroying wealth for model builders' IPOs.
I have been using some open-source and open Weight models in these last few days and at least for my applications it appears they are almost 80-90% as good as the paid ones like Claude or OpenAI codex.
I don't have to work too hard to imagine that eventually they will catch up and converge with the paid models .
it seems to me that Anthropic and OpenAI IPOs, whenever they happen, will destroy a lot of wealth if not immediately then eventually.
the software companies that use these modules and build services on top of them will be fine. The hardware companies too will be fine because not everyone can afford the horsepower required to run these models. the LLM builders themselves might be reduced to providing services and consulting or value-added services, but the general model itself will cease to be a revenue-generating product.
Anybody else feel this or am I completely missing something?
the llm builders are bleeding cash - spending more than they make. the openai v. anthropic rivalry is a race to the bottom. google is going to come out the long term winner because they integrate AI into their vast product portfolio (and microsoft as well because of integration opportunities of their own).
I kinda agree. Reminds me when at a time MATLAB was really popular among many domains including ML but Python came along with all its various libraries like TensorFlow, torch, numpy etc and sides MATLAB out. Big factor is Python being free and open source
I agree that LLMs will become commoditized, and in many ways already are. The only way frontier labs can differentiate on the model is by throwing massive amounts of cash into the R&D money pit. Once this is forced to slow down the gap between open source and closed source models will likely shrink significantly for a majority of use cases.
In my opinion, this is a big reason why frontier labs like OpenAI are desperately trying to break into new markets, like mobile phones for example.
Your thesis is spot-on regarding the middle tier of the market. Open-source is aggressively cannibalizing the standard LLM use cases, and any company whose sole moat is "we API into OpenAI" is facing an existential crisis.
Where the wealth destruction argument gets tricky is the definition of a "frontier." If the top labs are just building slightly better text predictors, they will absolutely be commoditized into utility providers...but if their massive capital spend allows them to unlock completely new paradigms like autonomous scientific research or flawless multi-agent orchestration, enterprises will pay whatever they ask.
The hardware and application layers are definitely the safer bets, but the labs aren't dead yet if they can keep widening the capability gap.
Good points. Is the application layer safe though? Whether the model layer gets commoditized or not, software companies will have more competition?
It's dependent on their adoption of AI architecture, which can make much more, all the wrappers that use ChatGPT API style will die as the vendors themselves will provide the products